The 2022 crop had a decent start in Northwest Iowa. Most corn and soybeans were planted from late April to mid-May, which is about the average schedule. Soil conditions were ideal for planting, but subsoil moisture was not fully recharged in many areas. Corn and soybean establishment was excellent on nearly all farms despite a cool stretch in April and May which slowed crop growth.
Weather turned hot in June and rainfall has been inconsistent. The majority of Northwest Iowa was well behind normal on rainfall in May and June, which is a continuation of the dry pattern going back to the second half of 2020. The hot and dry weather this June reminds us of last year which was one of the hottest and driest Junes on record. However, this year wasn’t as severe. Last year’s crops ended up doing much better than expected, so we shouldn’t be worried this year right? Well, it’s too early to say. Last year’s drought conditions lessened in July and August which saved the crops from major loss. We may need a repeat of that this year.
There’s a lot riding on this year’s crop to say the least. From a producer’s standpoint, it may be the most valuable crop in history. From a global supply standpoint, a large U.S. crop is essential to raise exportable grain stocks. Global stocks started tightening up in 2020 because of growing demand and South American drought. This year supplies are stretched even more while the Ukrainian ports are blocked by Russia. U.S. farmers strive to grow a bumper crop every year, but I think this year has added anxiety and hope.
On the national level, the USDA rated 67% of the U.S. corn crop as “good” to “excellent” in June which is just under the 5-year average of 68%. There were more than 2 million acres unable to be planted nationally, of which the biggest chuck was in North Dakota. Areas of the Upper Midwest and Northern Plans went from extreme drought last year to flooding this year. The multi-year drought remains in control in the South and West regions of the U.S.
The National Weather Service 90-day forecast calls for elevated chances of above-normal temps across most of the country for July through September. The La Nina weather pattern is favored to stick around through the end of the year, according to the National Weather Service. This will be three straight La Nina impacted seasons in a row which hasn’t happened since 1998 to 2000. So once again, the Central and Western Corn Belt may have hot and dry weather sticking around this summer. But keep in mind, we can still grow a big crop in a La Nina season (like last year).
“The cure for high prices is high prices” That’s an important saying in the commodity markets (or any market for that matter). Over the last couple years, it seems that saying is not holding true as prices for everything just go higher and higher. Everyone is well aware of the high inflation, so I won’t go into detail on that. But grain prices are being impacted by the overall inflation environment. Here are a few of the key effects of inflation on grain prices:
- Energy prices have a strong relationship to grain prices. The most obvious link is through biofuels which are more attractive in times of high energy cost.
- The cost of producing grain is highly linked to energy prices. All input costs for growing crops increase with high energy cost. High fertilizer costs and availability impacted the number of acres planted this year as well as the fertilization rates on what was planted around the world, which in turn affects supply and prices.
- Speculative buying of commodities on the futures exchange have pushed prices higher. Commodities are viewed as safe havens during times of high inflation and high uncertainty.
The war in Ukraine was a major shock to commodity markets. It changed global patterns of trade, production, and consumption. Even prior to the war, grain prices were moving higher with typical supply and demand fundamentals. Truly a perfect storm for high prices. So, when will this inflation cycle break down and high prices will once again be the cure for high prices? I guess that’s the million-dollar question. I wish we knew, but it’s safe to say U.S. agriculture will continue to have a vital role in providing food for a growing global population.
