Are we stuck in the drought?

By: Ryan Martin

Many wonder if there is any correlation between the weather events we have experienced this year (and in the past couple of years) and prior drought years, like the 1950s and the dust bowl years of the 1930s. We will examine that in a bit, but first, let’s start with what we know – the facts, if you will.

1) The national corn yield for 2012 was pegged at just over 123 bushel to the acre.

2) The average yield over the past 7 years is 148.5.

3) The winter of 2011-12 was one of the top 10 warmest winters on record. Also in that list were the winters of 1987-88, 1953-54, and the winter of 1933-34.

4) A moderate LaNina event was in place in 2012.

The first thing to point out, is that, for what its worth, the 2012 drought event has been billed as a bigger deal than perhaps it actually is. Why? Well, in February, the 2012 production, assuming perfect weather was for 165 bushel yield, lending itself to a monster crop. So, a 122 yield represents 43 bushel loss. However, in reality, the loss is only 25 bushel below our average, and 24 bushel below last year. Those numbers are far from ideal, but also a far cry from what has been advertised…and it kind of falls under the “counting chickens before they hatch” moniker.

Secondly…if you look at the four statements, it does not take rocket science to see the cause and effect. But from a pattern standpoint, one has to wonder “can this happen again?” Let’s look back at history. The main drought patterns we will investigate encompass 1930-36, and 1953-57. For giggles, we will also take a look at the droughts of 1983 and 1988 as well, although they are not generally recognized as part of a major drought pattern (the 80s are famous for multiple droughts covering many different parts of the country, but not any kind of back to back drought pattern). Also, due to space restrictions…we will only examine Kansas in these pages …data can be different for these years in other locations, but the logic follows in any climate zone across the country.

At first glance, this graph offers up nothing of major significance…a pattern seems a little tough to discern … or at least it is a stretch. But look closer, and then we will put together what we see here with the context of what is happening right now.

Notice that for the first five data points on the graphs, we dance around on either side of normal for all time periods. This is due to the fickle nature of winter precipitation. Snow can be wet or dry. In winter months we generally have less water equivalent precipitation, so one big storm or lack there over can put us over or under very easily, without really changing the over all landscape. Also, notice that we also had data points with a higher magnitude under normal than those that were above normal. In any case, we don’t grow crops in the winter, and historically, do not do the best job of consistently replenishing our soil profiles with moisture during the winter. What really becomes interesting is a pattern that emerges when looking at months 6-11. All of these points are below normal, and pay close attention to the magnitude …an average of 20-50% below normal!! There is a pattern…and it is one that does not bode well for production agriculture.

Now…to look at what could be to come. The dust bowl ran for 7 years. The 1950s drought for 5. We are 2 years into this pattern for 2011-2012. This would argue that there are at least 2-3 more years of similar patterns on the way. However…the interesting thing about drought is that it is tough to have drought patterns cover the magnitude of land mass that we saw in 2012 for multiple years. In 2012, drought expanded to include 61.8% of the contiguous United States. According to the National Oceanic and Atmospheric Administration, the closest year to 2012 in terms of land mass affected by drought was 1954, with 53.3%.

What is more key, is that when combining all other climate criteria, the most similar years to the current situation are 1955-56, which points to a least the potential extension of our current two year drought period by a year or two.

Where is it most likely to extend? To answer that question, its best to look at the soil profile. Dryness begets more dryness….so where the profile is driest, those are the first places to look for drought extension. And the driest profiles are in the plains and western Corn Belt. Look for the best chances of 2013 drought in SD, NE, KS, OK, IA (skewed to western IA) northern MO and perhaps extreme southwest MN. A good chunk of ND could be in play as well. Central and eastern Corn Belt locations likely will bounce back in 2013. But…the wild card for any production issues in the Corn Belt for 2013 will be heat.21-1 pg 12

How do you protect against this outlook? It’s pretty simple. Make sure you have upside protection on any sales. Don’t count on drought to drive prices up…but this outlook is not one that is going to deliver bin busting yields. Oh…and it’s also OK to hope this outlook is completely wrong. The guy who put it together completely understands.  

This material has been prepared by a sales or trading employee or agent of Schwieterman, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Schwieterman, Inc. Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. The information contained herein is based on data obtained from recognized statistical services and other sources believed to be reliable. However, such information has not been verified by us, and we do not make any representations as to the accuracy or completeness. All statements contained herein are current opinions which are subject to change. You may visit our web site at www.upthelimit.com

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