Here in the upper Midwest temperatures have remained low, and nighttime temperatures are still falling into the frost range, a weather pattern that seems ominously persistent as spring approaches with slowly greening trees, and the absence of sunshine and fallow cornfields.
With summer (June 21) around the corner, farmers are caught between the problem of not planting at all (and not harvesting), or planting in spite of the weather and losing the cost of corn seed to the unusually cold, damp ground.
Call it the result of a 50-year weather cycle, an effect of the sun’s recent decline in activity, or the flip side of global warming (which predicts erratic weather patterns, including regional cooling), this year’s global cooling is the fastest change ever recorded in history, producing temperatures almost 10 degrees below normal and record spring rains in the U.S. Cornbelt.
As a result, corn futures rose for the third week in a row, fueled by speculation that cold and wet will delay or even defeat Midwest corn production. As of May 18, only one quarter of corn had emerged from the ground, compared to an average of 56 percent for this same date over the past five years. Corn futures rose, capping the third weekly gain in four weeks, on speculation that cool temperatures and wet soils will delay early Midwest crop development. Recent predictions about a warming trend after Memorial Day have failed to materialize, and corn may well top out this summer at over $7 a bushel. In fact, it may become competitive with soybeans at $11 a bushel.
Farming lore says, "Lose a bushel a day after the 10th of May." If this is correct, corn harvests will fail to meet expectations by 15 percent or more unless the weather improves. Demand, on the other hand, is expected to exceed 2007 by more than a billion bushels. Even though U.S. corn production is up 19 percent since 2006 with farmers taking advantage of biofuel subsidies, the U.S. in general and the Midwest in particular, which is still world’s largest corn producer, faces severe corn shortages.
In spite of record crops in 2007, corn stocks are expected to fall in 2008 to a 13-year low as farmers plant more profitable soybeans. Additional hits come from rising withdrawals for ethanol, animal feed needs, and foreign demand, all impacting an already imperiled corn supply. All that even before figuring in the bad news about weather. Worldwide, corn stocks are at a use ratio of 12.6 percent, the lowest since 1972. This is only about a month and a half worth of corn supplies.
Even if wheat and other grains are substituted for animal feed, the 2008 corn crop must be more than 1 billion bushels higher to meet demand (an estimate based primarily on the completion of new ethanol plants and the processing margins of ethanol producers). As of 2007, one fourth of the U.S. corn crop was diverted to ethanol.
Unfortunately, wheat is also being impacted by weather. This past winter’s bitter cold and snow devastated winter wheat harvests across the U.S. grain belt (western Missouri to western Kansas and from southern Nebraska to central Texas), the primary grain for making bread and for use in cattle feed. In Australia, drought continues to impact wheat. Overall, wheat production is reported down, by as much as one-third in some instances.
The loss of corn, and the existing impacts on wheat as a result of a harsh U.S. winter, Australian drought, and emerging wheat pests like rust in Africa and Asia, means no grain substitution is economically viable in terms of animal feed. If this summer proves as bad for corn as predicted, cattle and chicken farmers may be forced to slaughter stocks rather than feed them at prices that would make the end product in grocery stores prohibitively expensive.
Large farms can survive one season of failed crops. In Minnesota, more than 50 percent of farms receive corn subsidies, with the top ten percent collecting 60 percent of these subsidies, or more than $6 billion over the past 12 years. Small farmers will be particularly harmed.
Foreign countries like Mexico will have to cut back buying by an estimated 16 percent, as 2008 ethanol production rises to consume 31 percent of the 2008-09 corn crop. If the weather trend continues, corn stocks at the end of August (2008-09 year) could drop below 700 million bushels. This is 45 percent less than a mere 12 months ago, and could leave corn stocks at 6 percent. Six percent is definitely not wiggle room, and the economic consequences to food supplies could be catastrophic.
If I were into commodities, I’d buy corn futures. If I were an American consumer, I’d stockpile flour and cornmeal. If I were a Midwest farmer, I’d be praying – and many are. If I were poor and living in Mexico, where corn tortillas represent the dietary equivalent of bread in the U.S., I’d be planting native maize in abandoned fields and hoping for a miracle. Little else will save the world’s poor and hungry from a perfect storm of bad weather, pests and disease, crop withdrawals for biofuel, and futures speculation driving prices into the stratosphere.