December 28, 2012

2013: A new year, a fresh outlook


By Kelly Brunkhorst, director of research for the Nebraska Corn Board
As printed in the Midwest Producer

kelly brunkhorstAs we move into 2013, there unfortunately is a lingering issue from 2012 that will not let go: the drought.

Although the latest U.S. Drought Monitor indicates an easing of the drought in portions of the eastern Corn Belt, it seems to be gaining a greater hold on the western Corn Belt. Nearly 99 percent of High Plains is in at least one category of drought, with 26 percent rated as exceptional, the highest drought intensity rating. Additionally, we are heading into the time of year when these areas don't gain much moisture going into the spring months.

Soil moisture conditions in the High Plains remain below normal, as the 2012 year crops had to use this moisture because of the lack of rainfall.

In addition, the current winter wheat crop has shown a steady decline in crop condition ratings, with the percent of crop rated good or excellent at the lowest point since 1985, according to the National Ag Statistics Service. Many farmers wonder how well the crop will endure an average winter.

The drought certainly doesn't provide the best background looking ahead to 2013, but included below are some thoughts in a few area.

Because all major crops having tight stocks ratios, the competition between different crops for planted acres will again be difficult as we leap into 2013. Over the past five years, corn and soybeans have gained 12.4 million acres, and these two crops will lead the battle for acres into spring planting. Yet with a lingering drought, farmers have to balance questions on soil moisture conditions, water availability, input costs, potential revenue and crop insurance. Add to this that industry consultants have started talk of up to 25 percent of the winter wheat acres could be abandoned.

If soil moisture conditions remain low, irrigation and rainfall will be even more important in 2013, not only in quantity, but also timing.

Domestic Demand
Not only has the drought affected this past year's crop production and the winter wheat outlook, but it has had an effect on domestic demand, specifically from the livestock sector.

With the drought in the second year in parts of the Southern Plains and having a strong hold on the High Plains, the loss of forage and dry pasture conditions have led beef producers to begin or continue culling cows, reducing the overall herd size. For dairy, swine and poultry producers, the higher costs of feedstuffs has also reduced herd sizes.

The biofuels industry has also seen continued tight margins from higher feedstock costs and lower prices for their products. This has led to longer maintenance shutdowns and idling of several plants across the country, reducing the demand of grains within the biofuels sector, but also reducing the output of distillers grains, an excellent feed ingredient for the livestock industry.

This year's drought has also had an impact of the domestic and international movement of grains through the U.S. waterways. Specifically, the low water levels in the Mississippi River has caused repeated restrictions and dredging to keep navigation open to barge traffic. Most recently, the lower releases of water from Gavin's Point Dam is reducing water levels around St. Louis, causing rock pinnacles to restrict traffic. Longer term, this could continue to restrict movement of U.S. commodities down the Mississippi River, backing up grains into the Midwest in early 2013, with the hope that snowmelt and spring rains will increase water levels.

There are positives out there! This past year, three free trade agreements became law that removed some tariffs and restrictions immediately within Columbia, South Korea and Panama for grains and value added products such as beef and pork. Other tariffs will be reduced over time. These agreements allow U.S. exports to compete more evenly in these countries with competitors that had agreements in place prior to the U.S.

Major export destinations such as China have shown no slowdown in their demand for grains and oilseeds, especially U.S. soybeans. This past year, China's imports of U.S. soybeans were equivalent to the production off of two-thirds of the acres harvested.

With the reduction in supply, corn exports have been down. The industry looks for exports to return providing production returns to more normal levels in 2013. Smaller exports from the U.S. has led to increased competition from countries across the globe, especially Brazil, Argentina, South Africa, Europe and the Ukraine.

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