Key corn- and soybean-growing states face extremely dry conditions. About 15% of corn and soybean production areas are experiencing drought, USDA reports.
“There is a vein that covers the Dakotas, and now there is increasing drought areas in Iowa,” says Jerry Gulke, president of the Gulke Group. “The areas in moderate drought are getting worse. We have clients from Iowa, and they said they had good subsoil moisture. But now they need more moisture. We are at a tipping point where some of this could really go down fast.”
As a result, many firms are lowering their production estimates for the year. Informa Economics has lowered its national average corn yield to 166 bu. per acre. In 2016, the national corn yield was 174.6 bu. per acre.
“For beans, there is still lots of time left,” Gulke says.
With this deterioration, we think we should see a better price, Gulke says. “But carryover is a bugaboo in corn,” he says. “We have a 2-billion-bushel corn carryout that says no matter what, we’re not going to run out of corn for the next year.”
Long-Term Demand Looks Strong
Although short-term prices might be discouraging, Gulke is encouraged by the global demand picture.
“Global demand is robust,” he says. “If there’s a problem with prices, it’s just that we’ve been able to produce a little too much every year for the last couple years, and that’s on the backs of good production from just about every country.”
But this year, that’s not the case.
Gulke points out the U.S. is not on track for record corn and soybean production. Neither are Australia, the European Union or other key growing areas.
“But it takes an average crop to just meet ever-increasing global demand,” he says.
This is already causing an acreage battle for 2018, he points out. (Read his insights in the upcoming Summer issue of Top Producer, which hits mailboxes Aug. 2, 2017).
Because of poor production levels in 2017, Gulke says, spring wheat will need to claim 3 million to 4 million acres next year. But most of that crop is grown in North Dakota, which is the fourth-largest producer of soybeans and a major player in corn.
With those crop shifts, will U.S. farmers still plant 90 million acres of corn? With the demand prospects for corn, that might not be enough.
“Pretty soon, we’ll have to get corn acreage up to 94 million acres in order to keep carryover comfortable again for the end user,” he says.