USDA: Little Relationship Between Drought One Year and the Next

09:41AM Feb 22, 2013
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At the grain and oilseeds outlook session of USDA's Agricultural Outlook Forum, stakeholders heard a lot about the weather - of 2012 and what it implies for the 2013 growing season. Both USDA Meteorologist Brad Rippey and USDA Ag Economist Paul Westcott noted there is very little relationship between drought at this time of the year and lower yields. This echoed the sentiments of Chief Economist Joe Glauber the day prior. Westcott elaborated that cumulative precip during the offseason had no "statistically significant" effect on yields and this "Illustrates the importance of growing season weather."

Click here for more additional details from the Grain and Oilseeds Outlook breakout session.

Rippey did, however, express concerns about ongoing dryness in winter wheat country for a crop that entered dormancy with a record-low condition rating. He says this raises concerns about abandonment for 2013. He also noted that pastures and rangeland remain in tough shape.

Westcott took attendees through the factors that go into incorporating weather into the corn and soybean national average yield model. For corn, this includes consideration in the eight major corn states of mid-May planting progress, July precip and temperatures and June precip shortfalls for extreme years.

For beans, the weather variable considers the average temp and precip for July and August as well as precip shortfalls in June for extreme years for the seven major soybean producing states.
The models resulted in asymmetric yield responses for variations in summer precip.

Pete Riley, ag economist with USDA's Farm Service Agency, wrapped up the session with a closer look at USDA's projections for corn, soybean and wheat that were released earlier in the morning. As indicated by the numbers, corn and soybean production are expected to rebound on a return to more normal levels, which will in turn increase ending stocks and drop prices.

Riley also laid out some scenarios for favorable and unfavorable weather scenarios for corn and beans. For corn, ideal weather conditions would result in a yield of 170.1 bu. per acre and a crop of 15.140 billion bushels. This would result in a national average corn price of $4.20. Unfavorable weather would result in a yield of 154 bu. per acre and a crop of 13.63 billion bu. with a national average price of $5.80.

For soybeans, ideal weather would result in a national average yield of 45.6 bu. per acre and a crop of 3.495 billion bushels. Poor weather, on the other hand, would result in a national average yield of 42.9 bu. per acre and a crop of 3.285 billion bu., with an average cash price of $11.60.

Riley also outlined some risks to USDA's forecasts, with the headliner being weather. Besides that, uncertainty exists about the transition from a tight old-crop situation, including concern about South American production, Brazil export logistics, the degree and duration of new crop risk premium and the timing and availability of new crop supplies coming available.

Other risks to the forecast include actual planted acreage for 2013 and volatility in the oil and energy markets. Foreign producers' response to falling prices will also be important, especially China. Whether China continues to increase its bean buying and whether it will ramp up its corn imports as prices fall will be key.

Riley also spent some time talking about ethanol. He noted USDA expects just a modest rebound in ethanol production, reflecting a decline gasoline use and the "blend wall." Ethanol exports are not expected to recover due to higher production out Brazil and an increase in the country's sugarcane ethanol production and trade barriers in the European Union. Riley also noted little progress is expected on E15 (15% ethanol blend into gasoline.)