Farm Management Specialist
University of Missouri Extension
|May 7, 1999Weather and Government -- Change Will
Changing conditions, uncertainty and risk have always been a part of agriculture. Weather is one element of change that we have no control over and it seems like the same often applies to government policy. The following demonstrate why flexible production and marketing plans are essential in order to deal with uncertainty.
The weather, will it stay too wet? According to Elwynn Taylor, Iowa State University Extension Climatologist, La Nina strengthened in April. He doesnt expect that excessively wet conditions will persist. Taylor anticipates that the 1999 growing season will exhibit extremes of heat and cold, wet and dry. The odds still favor having trend line corn yields, but the risk of a summer drought is greater than average under La Nina conditions. According to Taylor, "The historical risk of wet conditions shifting to excessively dry in or by August is about 40% in a La Nina year."
What does this mean for us? Keep in mind that Taylors predictions are for Iowa and may not be the same for Missouri. But it does suggest increased chances of heat or dry conditions during corn pollination--especially for late planted corn. This increasing risk, along with unclear market signals (see last weeks Decisive Marketing), may influence the decision of whether to stay with corn or switch to soybeans.
Changes in the LDP? Apparently USDA has been looking at how LDPs (loan deficiency payments) are calculated. Earlier this week, they were expected to announce using a national LDP, based on a national price, instead of LDPs using local prices. This would mean one LDP rate for everyone, regardless of location or basis. As it turned out, this didnt happen or at least it hasnt happened yet.
The LDP provisions of the marketing loan program have influenced this years planting decisions. Since soybean prices have been below loan rate, many production and marketing plans have been built on using the LDP. Nearly everyone has made the assumption that the LDP could be used to establish a floor price equal to the loan rate. Changing the LDP, or how it is calculated, could have a significant impact on these plans.
Both weather and government programs affect changes
in planting decisions. Delayed planting increases the risk that hot and/or dry
summer weather would reduce corn yields. If USDA does adjust LDPs, this could impact
the decision to switch to soybeans with prices expected to be below loan price. This
illustrates how two unrelated factors can give mixed signals affecting a single decision.
The decision to change production plans because of weather is always difficult, but this
year it seems more complicated than ever. If production plans are changed, marketing and
cash flow plans need to be revised too. One thing is certain. Weather and government
rules--they will eventually change! -- Melvin
Decisive Marketing - May 7, 1999