Weather Updates

This year’s drought drives corn, soybean prices higher

A New Lenox cornfield shows effects lack rathis spring.   |  Larry Ruehl~Sun-Times Media

A New Lenox cornfield shows the effects of the lack of rain this spring. | Larry Ruehl~Sun-Times Media

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Updated: August 4, 2012 6:23AM

A lot of Midwesterners would love to see July 4th festivities rained out this year.

Nobody’s being unpatriotic. They’re just concerned about their crops, which are entering a crucial phase of their development with little rain in sight.

The drought that has browned lawns and wilted flowers in the Chicago area is taking a toll on the nation’s corn and soybean fields. In turn, commodity prices at the Chicago markets have leapt in the last month as traders calculate the prospect of lower supplies.

The situation can create short-term profits for traders but also sets up danger. Traders know that a “weather market” can turn against them without warning, like an avalanche.

But with forecasts calling for more weeks of below-average moisture, prices are liable to head higher, said Terry Roggensack, grain analyst for the Hightower Report.

At the Chicago Board of Trade, the corn contract for December delivery has gained 30 percent since June 1, closing Monday at $6.56 a bushel. September soybeans are up about 13 percent over the same period, with Monday’s close at $14.62 a bushel. Soybean prices are at a nearly four-year high.

Roggensack said that if weather forecasts are accurate, December corn could hit $7.40 and soybeans by the end of July might be in the $18 to $19 range.

“The market for a long time had underestimated the impact of the dry conditions,” he said.

“With lower yields, we are looking at supplies of these commodities getting extremely tight.”

Meat prices also are trending higher in trading at the Chicago Mercantile Exchange. Analysts said that’s not drought-related but heat-related: Hogs and cattle lose weight keeping cool, so producers are less eager to send them to slaughter.

Glenn Ginder, who farms about 700 acres near Peotone, said corn is hitting its crucial pollination stage, which will play out over the next two weeks. But he said the situation is more dire further south in Illinois and Indiana.

“The crop is behind where it was last year,” he said. Soybeans are earlier in their development, but in a short time will likewise need energy from rain, Ginder said.

And his farm by comparison is in a “garden spot,” said Jim Angel, climatologist at the Illinois State Water Survey at the University of Illinois.

Far southern Illinois has a rainfall deficit of nine to 12 inches over the last three months, compared with six to nine inches closer to Chicago, he said. “We’ve been warm and dry all of 2012, and it’s just now coming to a head with the growing season,” Angel said.

He said that without slow-moving storms that soak the soil, crops will deteriorate markedly in the next couple of weeks.

The U.S. Agriculture Department, in a weekly crop condition report issued Monday, rated 33 percent of Illinois corn fields as in “poor” or “very poor” shape, vs. 22 percent just a week ago.

In time, the higher costs for commodities could show up in grocery prices, but consumers can take heart from several trends.

One is that the impact on the grocery shelves is always delayed. Roggensack said it can take six to eight months for price changes on the farm to register with wholesalers.

Also, prospects of a slower economy could lower prices, he said.

Corn prices already have been affected by reduced demand for ethanol in gasoline and by fears that a recession in Europe will reduce its appetite for American crops.

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