Might Corn Yield Survive All That Rain After All?

July 28, 2015 05:00 AM
Might Corn Yield Survive All That Rain After All?

Illinois farmers may be requesting federal disaster assistance after experiencing the wettest May through July in 30 years, but all those waterlogged fields may not reduce yield as much as people might expect.

“We suggest based on facts that it’s a 165 bushel-per-acre corn crop,” said Rich Nelson, chief market strategist at the McHenry, Ill.-based Allendale, speaking during the firm’s AgLeaders Conference in July. “Yes, it’s smaller than we were talking about a few months ago, but it’s nothing like what is being priced in this market right now.”

While Illinois has so far received 22.1 inches of rain between May and June, other years have been similarly wet, according to Nelson.

He pointed to a handful of historically rainy years in his presentation:

  • 1981: Illinois received 22.2 inches of rain between May and June. Final state yield? 126 bu., which was 12.7 bushels higher than trend.
  • 1990: Illinois received 20.4 inches of rain between May and June. Final state yield? 127 bu., which was 5.1 bushels higher than trend.
  • 1993: Illinois received 20.3 inches of rain between May and June in the year of the Mississippi River floods. Final state yield? 130 bu., which was almost 3 bushels higher than trend.

That may seem hard for some growers to believe, given that some fields look more like lakes.

“In the last couple of weeks, we have went from central Ohio to eastern Colorado—same story everywhere you go—crops are damaged from too much water,” said a farmer in Delaware County, Ohio. “People ruining the farmer’s livelihood should get out of their comfortable office and see what is going on in the real world.”

Others have seen how much variability there can be in this year’s crop, even in the same area.

“Another 3.75 inches of rain in the last six days,” a farmer in Putnam County, Ind., told AgWeb’s Crop Comments on July 21. “The good crops keep looking better and better, and the bad stuff is going to be a nightmare for some guys.”

It’s a situation that suggests market volatility will continue.

“We can go lower (in terms of corn prices) the next few weeks simply because the market will realize that we have a much better crop than the market was pricing a few weeks ago,” Nelson said. “We don’t have a $4.50 December corn crop. We have something a little lower than that, because this is still a very, very respectable crop.”

With that in mind, Allendale Vice President Steve Georgy warned farmers to be realistic in their expectations and protect themselves from the possibility of falling prices.

“When you look at good to excellent (crop condition) ratings sitting where they are, when you look at pollination … and you look at what could be coming ahead, where is your risk? Is the risk that we’re going up or the risk that we’re going down?” Georgy asked during the seminar. “Owning (grain) in the bin right now is probably not a good idea in the sense that we probably can continue to gravitate lower. … If you don’t want to make sales, then let’s find some puts. Let’s find some strategies to protect you if the market goes down.”

Georgy’s recommendation: Be prepared to buy a $4.20 put on December corn and sell $4.60 calls on December corn at 12 cents. “That gives you protection below $4.20 until the end of November,” said Georgy. His other piece of advice? Sell a $3.50 December corn put at 12 cents.

This strategy allows producers to take advantage of any upside while offering protection against potential downside. “What’s going to happen if these funds decide, ‘Hey, guess what? I don’t want to be 180,000 long in corn anymore?’” Georgy asked. “We need to be careful of the downside.”

Do you think the U.S. will make, exceed, or fall below trendline yields in corn in 2015? Let us know in the comments.

A previous version of this story incorrectly stated Illinois state yields in rainy years as national. Those figures have been corrected.

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Spell Check

7/28/2015 07:10 AM

  The top 4 corn producing states are Iowa Illinois Nebraska and Minnesota. Of the top 4, Illinois is the only one that's suffering. Minnesota is on its way to record yields with near perfect weather that Illinois experienced last summer. Last year MN had a 156 state average...that's quite low for us and this year will jump significantly barring a late season disaster. Iowa had a 178 last year andNebraska also had a 179...these are good averages for these states and have the potential to remain the same. nobody ever cares about South Dakota but SD looks fantastic this year as And compares in size to acreage of Indiana. The NW corn belt is in excellent shape and the law of averages I think still comes into play this year. If you think the wet weather in one or two states is going to hurt the carry out that bad I would think again...

Burnettsville, IN
7/28/2015 07:11 AM

  I guess it all depends on where you drive thru those states. In my 30 yrs of farming this is unquestionably our worst crop. On 1000A, I do not have a single field that will yield 100b/a. At this point I would guess an ave around 40 b/a. The one difference that no one is considering is the effect of insurance, a lot of farmers have abandoned their fields and have not gone in with rescue N. I have been trying to put on N all summer. What I put on on 6-4 looks like it had none. The corn I put on on 7-5 has greened up and is tasseled but is only 4 ft tall. I was going to finish up 7-25 but our agronomist told me I was waiting my time as the corn is only a little over knee high, has no roots and not enough leaves to make anything. There is some very good looking corn around if it was planted early enough to get rooted down and they missed the 3-4 in rain we got on May 30 but we were already wet in May. That early corn is also limited because it is running out of N also. I am sure it could be rescued with a spike of N but no one is doing it because of insurance!

7/28/2015 11:50 AM

  Nope ... yields will be down considerably. You didn't do adequate research on this. Allendale is clueless and and not to be counted on as your primary source for a bountiful crop in 2015. Will you do a part 2 on this article after the Pro Farmer Tour, and a part 3 after the harvest is in the bins ? Then tell us who was credible and who was blowing their own horns -- selling calls/puts.