January 17, 2013 5:58 pm

Agricultural traders in a sweat over US drought

The heat is gone and the shock has faded, but a terrible US drought remains. And it is not about to disappear.

That was the message in a government drought forecast released on Thursday, the first to cover the April start date for most corn and soyabean planting.

US drought map

US drought map

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While snow and rain have relieved some areas, the majority of the Midwest and high plains regions are still suffering drought. States such as Nebraska and Kansas show no sign of improvement, while the situation in Texas is set to worsen.

The drought pushed grain futures prices to records last year. Prices, still high, have steadied as traders take comfort in a large, impending Brazilian crop. But another dry year – or a surprisingly wet one – in the world’s biggest grain exporter could end this period of calm.

Even as it loses market share to Brazil and other competitors, the US remains a key source of surplus grain and oilseeds for importers from China to Egypt. Its drought in 2012 triggered alarm at the UN Food and Agriculture Organization and in the World Bank as policy makers fretted over price volatility and the possibility of panic buying.

Predicting weather is more daunting than usual this year because the El Niño and La Niña weather patterns have receded. These are normally the best guides to likely rainfall and their absence leaves forecasters relying on new, sometimes conflicting, models.

“It’s tough,” says David Miskus of the Climate Prediction Center, a division of the US National Weather Service. “We’ve gone to these models when there’s nothing else to look at.”

The agency gives better-than-normal odds on precipitation in parts of corn belt states such as Iowa and Illinois, but sees dry weather continuing stubbornly across the south.

Its map contains a vast brown expanse where the drought is to persist or intensify.

Last year’s drought led to a 13 per cent annual decline in the US corn crop and a 3 per cent smaller soyabean harvest.

Now fields of hard red winter wheat, planted in autumn and harvested around July, are in trouble.

In Nebraska half the winter wheat was in poor or very poor condition at year-end, while in Oklahoma it was 61 per cent. Pastures rated worse, contributing to current record cattle prices. The agribusiness Cargill announced Thursday it will idle a Texas slaughterhouse because of “tight cattle supply brought about by years of drought”.

Interactive graphic: US drought

Cornfield

View the effects of the extreme drought faced in the US heartland in our interactive graphic.

Dan Hild, a grain handler in Tribune, Kansas, estimates that as much as 30 per cent of his county’s wheat crop was destroyed after sprouting on dry land.

“It doesn’t matter if we get an inch of rain every day from here on. That part of the crop is dead,” he says.

Futures contracts linked to hard winter wheat, a high-protein variety used in bread flour, have gained 13.5 per cent since the drought first drew wide attention in June 2012, compared with a 6 per cent rise increase in soft winter wheat grown further east.

Overall, US wheat supplies are expected to grow this year even as global production falls due to sharp declines in Australia, Russia and Ukraine. World wheat stocks have been falling but are still well above the critically low levels of the 2007-08 food crisis.

There is considerable optimism over summer-grown crops such as corn and soyabeans.

Corn for March delivery sells for $7.24½ a bushel on the Chicago Board of Trade, $1.38 above the same commodity delivered in December, after this year’s harvest.

“Rain in the spring cures a lot of ills,” says Art Liming, futures specialist at Citigroup.

Some corn belt states have improved: Ohio, completely in drought last July, now registers just a handful of dry counties, according to the US Drought Monitor.

But Brad Rippey, USDA agricultural meteorologist, warns: “It’s too early to make a judgment on any summer row crops.”

Some signs are far from promising.

Drought tends to intensify as moisture evaporates more quickly and leaves less of a buffer against hot days to come.

“There’s a positive feedback loop, unfortunately, for drought,” says Tony Barnston, chief forecaster at Columbia University’s International Research Institute for Climate and Society.

Moreover, by the time of this year’s harvests, US corn stocks are projected to the lowest since 1996. Conditions could worsen. Last April the government’s three-month outlook predicted virtually no drought in Indiana. The state had become an oven by June.

Mark Svoboda, climatologist at the National Drought Mitigation Center, says the dry autumn and winter did not necessarily increase the odds of a dry spring.

But they do make farmers entirely dependent on spring rains to recharge soil moisture.

“We’ll be living rain-to-rain much, much earlier in the summer than we did last year. That’s of major concern unless we get around 150 per cent of normal spring rains,” he says.

Indeed, the US Drought Monitor shows 70 per cent of the US mainland in drought, up 16 percentage points from a year ago.

“You could almost make the case that we’re worse off than we were at this time last year,” says John Robinson, who grows corn and soyabeans on 1,000 acres in Piatt county, Illinois, one of the most productive districts in the country.

“Drought is back on everyone’s mind.”

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