June 24, 2011

 

US Midwest needs good crop weather to fill world export demand

 

The US Midwest needs good crop weather to produce a corn crop bountiful enough to fill export demand and to help rein in galloping inflation in countries like China and India.

 

Rarely have the inches of rainfall in Iowa or the hours of sunshine in Ohio been more pivotal to soaring global food prices and inflation than they will be this summer.

 

This year, rising global food demand has put more pressure on the US, the world's top grain exporter, to make up for grain production shortfalls in countries such as Russia and Ukraine. So far, there has been too much rain and too little heat.

 

The corn crop was planted at least a month late in Ohio, leaving it vulnerable to an early fall frost. The heat the crop needs to flourish, as measured in growing degree days, has been lacking in that state as well as others such as Iowa.

 

Poor growing weather so far could hold back plant development, cutting yields by millions of bushels. Forecasters now expect corn stockpiles at the end of the 2012 harvest will dwindle to the second lowest in modern times.

 

Favorable weather in July, when the plant pollinates and locks in yields, could mitigate losses. But July weather would have to be exceptional to make up for the slow planting during one of the wettest springs in recent memory.

 

"The weather is going to be extremely important. We've lost corn acreage due to the flooding and late planting and we've lost some yield potential, the potential for maximum yields, because of the late planting," said an analyst.

 

"We've started off in a hole, so now we're putting a lot of pressure on summer weather to bail us out," he said.

 

That may not happen. Most forecasters are looking for a cooler than usual summer due to the fading La Nina pattern, which tends to bring a cooler and wetter spring and summer.

 

That makes crop damage more likely at both ends of the meteorological extreme: corn stalks that have yet to cross the critical pollination stages by late July or August risk heat damage at the peak of summer; those that haven't matured by early October risk early winter frost.

 

The La Nina phenomenon has not always reduced crop yield, and forecasters say it is nearly impossible to accurately predict conditions much more than a week into the future.

 

The previous La Nina event waned in the spring of 2008, a year when the US corn yield averaged 153.9 bushels per acre, slightly below the trend line yield of 154.1 bpa. In 1996 and 2001, also years that La Nina faded into the summer, yields were were about half a bushel below the trend line.

 

Still, in La Nina years 1976 and 1989, yields topped the trend line by about four bushels.

 

But with the corn market on a knife's edge, the balance of risk this summer seems skewed toward poorer crop weather. The US Climate Prediction Center, part of the National Oceanic and Atmospheric Administration, last week forecast below-normal summer temperatures in the western Corn Belt.

 

Corn prices on the Chicago Board of Trade surged to an all-time high near US$8 a bushel this month after the USDA projected corn supplies through the end of summer would remain razor-thin at just 5.2% of total consumption -- the lowest since 1995-96 and the second-lowest since World War II.

 

But since hitting that all-time high, prices have plunged 155 to the lowest point in more than a month as benign weather eased some concerns about production and as speculators cashed in profits amid signs high prices were hurting demand.