The story of drought and its impact on family farmers is of great interest these days. Depending on where you are, the story might be something from a total loss to just a few percentage points lost in your expected yield. Here are a few points to remember regarding Illinois family farmers and their corn crop.
- We are a long way from harvest, but the dry growing season has no doubt already had a measureable negative impact on yields.
- The improved genetics and technological traits in the seeds we use help to minimize yield loss due to stressors like drought. We’re also using improved tillage and conservation methods that have helped to preserve soil moisture as much as possible.
- Corn farmers are at Mother Nature’s whim, just like everyone else. There’s not much that can be done to change the impact of a drought once the crop is in the ground.
- The farm families that depend on row-crops like corn and soybeans are probably impacted the most by this drought.
- The commodity markets have already reacted to the weather situation and we expect them to continue to react to weather events through the remainder of the growing season, as the markets always have. Historically, a weather event like a drought will cause a price spike that quickly drops down to a certain degree and then tails off through harvest.
- With a reduction in the U.S. corn supply due to any reason, the supply-demand situation will shift.
- Current corn demand is already contracting as ethanol plants have either been idled or reduced their production, slowing corn demand.
- If corn prices remain higher, corn users will change their behavior in some manner. This is expected in a free-market system.
- Corn is an ingredient in some food products but typically as a portion of the overall prices, the cost of the commodity ingredient is a relatively small piece, usually something like 5-6% or less. Transportation costs (price of gas and diesel), packaging, and marketing make up the lion’s share of the cost of any food product.
- Corn is the major ingredient in livestock feed. As corn prices rise, so will feed prices. History shows us that in times of sustained higher feed prices, livestock farmers will trim herd size. The first result is more “meat” on the market, causing an increased supply, meaning meat prices should drop. The next step in the cycle is a smaller supply for future market dates, meaning looking to the future, meat prices may be higher. The increase in meat prices may or may not make it all the way from the grocery store back to the farmer. As an example, there is about 25 cents worth of corn in a pound of hamburger.
- High corn prices don’t necessarily mean corn farmers are making money. Increasing corn prices because of limited supply mean that farmers have fewer bushels to sell. Many farmers may not benefit from the higher prices because they sold a portion of their crop earlier this year for fall delivery. Unfortunately, some farmers pre-sold crop that they cannot now produce because of the drought reduced their yields to unforeseen levels.
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