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Drought Influences 2013 Decisions

October 16, 2012
By: Ed Clark, Top Producer Business and Issues Editor
drought infuences

Producers change production and marketing

To the naked eye, two of Dale Kuehl’s fields looked identical in late August—amazingly good, in  fact, for one of the worst droughts since the Dust Bowl. Upon closer inspection, though, the Pro Farmer Midwest Crop Tour scouts found that one field had nearly double the yield potential.

So how did two fields, literally side by side, end up with varying production levels? Kuehl, who farms near Atlantic, Iowa, thinks it all comes down to hybrids. The field projected to yield 202 bu. per acre was planted with a new drought-resistant hybrid. The hybrid projected to yield 122 bu. per acre, a top performer in 2011 for Kuehl with more than 200 bu. per acre, did not contain the  droughtresistant genes. Kuehl planted the drought-resistant hybrid on 15% to 20% of his acreage this spring.

Will Kuehl plant a higher percentage of drought-resistant corn in 2013? "It’s a real possibility," he says, not yet committing to next year’s seed until he sees what his yield monitor shows at  harvest.

If the drought lingers to next spring, one Nebraska producer says, he might plant all soybeans and no corn since soybeans can produce a crop with less moisture.

The drought is altering more than agronomic practices. It’s also changing producers’ marketing strategies. Normally, Kuehl sells a percentage of corn throughout the growing season. This year, he’s holding off on marketing until he sees how many bushels he ends up with, not wanting to lock in contracts for corn he can’t deliver. Once he is confident of his final yield number, he plans to be aggressive if he can sell corn for $8. "If you have $8, there’s no reason to stick it in the bin and hope for $9 or $10," Kuehl says.

With an eye on the future, Illinois producer Byron Jones says the drought has altered how he will market his 2013 corn and soybeans. In a departure from his typical sales pattern, he expects to pre-sell more than normal. He plans to forward sell 15% to 20% of both corn and soybeans by harvest, and that much again in early January.

"This is an election year and farmers are forgotten about after the election," Jones says. Moreover, going all the way back to 1970, history shows that a short crop has a long tail, and thus price peaks could occur either prior to harvest or shortly thereafter.

"This will be a hedge against lower prices," the Saybrook, Ill., producer says of his strategies.
Based on what Jones saw in fields, he believes the national yield will be lower because of small kernel size and low test weights.

The best time to market 2012 corn is when the market is trying to cut back use and destroy demand, which might be soon, if not now, says Pro Farmer editor Chip Flory. As a result, the price peak might have already been reached. "That’s not to say we won’t have another run-up to retest the highs," he adds.

Hefty Discount for 2013. As for marketing next year’s crop, the discount of December 2013 versus 2012 futures was a whopping $1.56 in August. That said, "it’s still $6.50 corn," Flory says. He sees nothing wrong with selling up to 20% of expected 2013 corn, but no more than that. He anticipates anothermarketing opportunity to occur next February and March when corn and soybeans duke it out for acres. "I just don’t see a lot of downside risk for December 2013 corn," he says.

"The best time to market 2012 corn is when the market is trying to cut back use and destroy demand,
and that might be soon."

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FEATURED IN: Top Producer - October 2012

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