Melvin Brees
Farm Management Specialist
University of Missouri Extension




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April 14, 2000

Is the Drought Over?

It's hard to believe that the drought might be over--especially here in Central Missouri where soils are dry, ponds are low and rain chances fail to materialize. However, recent rains have decreased the size of the dry area in the mid-West. Topsoil moisture maps show most of the country has adequate moisture (Central Missouri is among the exceptions) to get the crop started. Weather observers say that LaNina is showing signs of ending and a Bermuda High could bring good moisture to the entire Corn Belt by the second week of May. In addition, planting is getting off to a good start and Tuesday's USDA Supply and Demand Report didn't have any surprises. The result, some of the "weather premium" was taken out of the market in the form of lower corn and soybean prices in the last couple of weeks.

The end of the drought isn't assured. Most of the weather predictions are careful to say that while weather patterns might be beginning to change, it could still be dry this summer. Topsoil moisture levels have improved, but subsoils are still dry. Everyone realizes that two weeks of dry weather and hot summer temperatures could seriously affect production. Wednesday's sharp upturn in soybean prices was due, in part, to reduced rainfall expectations from the next weather front. The markets still have some "weather premium" and it's very early in the season.

This situation increases the risk for those who still have old crop ('99) corn and soybeans on hand. Storing in anticipation of higher prices from dry weather should be considered very carefully. While dry weather potential may support prices, several analysts believe that any price gains above recent highs will be hard to come by. This means the potential for additional returns to storage, is limited. Downside price risk should not be ignored. If weather conditions do improve, significant storage losses could occur. Only continued dry weather, to the point of actually reducing 2000 production, might send prices high enough to reward further storage.

New crop risks are even greater--especially for Central Missouri and other dry areas. If the weather stays dry, it's easy to sell too quickly and miss out on higher prices while production prospects diminish. If weather improves and a large crop is produced nationwide, prices are likely to plunge. In this case, waiting too long to see how the crop looks can miss out on short-lived weather market chances at better prices. Reduced yields in the dry regions can result in the "double whammy" of reduced production and low prices.

Weather markets can change rapidly and create huge risks. Late in the week, market analysts were again turning their attention to dry conditions and weekend weather forecasts. Dry or not so dry, it's hard to come up with a market strategy that doesn't include "betting on the weather." The key to managing risk is to have flexible strategies that avoid betting "everything" on the weather.

-- Melvin

University of Missouri ExtensionDecisive Marketing - April 14, 2000 -- Revised: April 20, 2004