Continued drought pushes up crop prices

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July 30th, 2012

Omaha, NE – Much of the country is currently under drought conditions to some degree, according to the U.S. Drought Monitor. But here in Nebraska things have gotten progressively worse in the past month.

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The Drought Monitor shows nearly 75% of Nebraska is under a extreme drought. The dry conditions have caused wildfires in central and west Nebraska and potential issues with herd liquidation. That occurs when feeding cattle gets too expensive and ranchers start losing money on each head. In turn, ranchers sell them to a slaughterhouse to cut their losses.

Darin Newsom is a senior analyst at Telvent DTN, a leading source for breaking agriculture news, markets, and weather forecasts. He said the drought has also affected the corn and soybean markets significantly.

Drought conditions will likely affect crop production for this year’s harvest. (Photo courtesy Wikimedia)

“This the highest that we’ve been,” Newsom said. “We’ve seen corn go above $8; we’ve seen soybeans go up above $17.”

“As production estimates start to come down, supply and demand numbers start to tighten up and prices begin to rally,” Newsom said. “It usually leads to very quick spike, very volatile spike, a short supply spike,” Newsom said.

And that is exactly what has happened over the past few weeks, Newsom said. Since June 15th, futures corn has spiked nearly 55%. Futures soybeans in that time has jumped nearly 30%.

Newsom said he’s expecting prices to climb further. “We are still not calling for any changes in the weather,” he said, “and so what we are going to see is continued deterioration of the corn and most likely the soybean crops.”

U.S. production should continue to come down, he said. “At some point, we are going to hit that tipping point, and when we do the markets are going to come down quickly.”

The lack of moisture has hurt more than the corn and soybean markets. In Nebraska, farmers are having to cut back on surface irrigation because of the lack of surface water. Bryce Anderson, Senior Ag Meteorologist at Telvent DTN, says there is no end to the drought in sight.

“The forecast for the next three months, all the way through October, is for this warm and dry patterns, above normal temperatures, below normal precipitation to continue,” Anderson said.

“Long term, I think we are going to see some declines in water availability,” Anderson said.

Anderson said replenishing water supplies will take substantially above-normal precipitation. There simply isn’t enough water to resupply some of the river channels and streams because of the dry summer, he said. “River flow has been cut dramatically.”

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