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Worst Midwest Drought in 17 Years

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CattleCo

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The Wall Street Journal

August 4, 2005

Worst Midwest Drought in 17 Years
Is Withering Crops, Slowing Cargo

By SCOTT KILMAN
Staff Reporter of THE WALL STREET JOURNAL
August 4, 2005; Page A1

The worst drought across the central U.S. since 1988 is beginning to shrink potential harvests of corn and soybeans, and slow commercial shipping on some of its busiest rivers.

The prolonged dry spell, now in its fifth month, is causing plenty of headaches in the region by blistering some of its most productive farmland and draining tributaries that feed the Mississippi and Illinois rivers. Those are crucial pathways for hauling commodities such as salt, petroleum products and cement-making materials to Midwest cities.

The ripple effects span out. Several barge operators are reducing their loads to keep vessels from scraping the bottom. The move is threatening to slow the delivery of building materials to some construction projects in Chicago and could snarl the movement this fall of newly harvested crops.

If river levels don't rise soon, the U.S. grain industry "will have significant delays," said Royce Wilken, president of American River Transportation Co., the barge unit of Archer-Daniels-Midland Co., the Decatur, Ill., commodity-processing giant.

So far, the economic fallout from the prolonged drought isn't as broad as the impact of the 1988 dry spell, which shrank the U.S. corn harvest by 31% and speeded the consolidation of American farms. The swath of affected land this time is much narrower than it was 17 years ago.

Moreover, the economic damage of the drought is being partly offset by a marked easing of a separate drought that has plagued farms and ranches across the Northern Plains for more than five years. Most economists, for example, expect the rate of overall food inflation to cool this year, largely due to weakening cattle prices.

The Midwest state hardest hit by the drought is Illinois, typically the nation's biggest producer of soybeans and the second-largest producer of corn, behind Iowa. Fields across much of Illinois have received less than half of their normal rainfall since March, making them the driest since the drought of 1988.

According to state authorities, tens of thousands of Illinois farmers already have lost one-third of their potential crops, which is spreading a chilling effect on merchants in farm towns across the state. A survey by the U.S. Department of Agriculture found 55% of the Illinois corn crop in very poor or poor condition the last week of July, as well as 34% of the soybean crop and 74% of Illinois pastures, upon which livestock graze.

"We're putting off as many spending plans as we can," said John Ackerman, a 44-year-old farmer in Morton, Ill., who had wanted to buy a chemical sprayer for his apple orchard but isn't. "It's amazing how one bad year can set you back."

Managers of many Illinois grain elevators, which buy crops from farmers and sell to processors, are resigning themselves to lower grain volumes -- and profits -- this year. Minier Cooperative Grain Co., in Minier, Ill., has tabled plans to invest in new grain storage tanks.

At the nearby Deere & Co. farm-equipment dealership, the sale of "new stuff is coming to a screeching halt," said Rick Cross, owner of Cross Implement Inc. in Minier.

Production of corn nationwide should fall 16% this year to 9.9 billion bushels from last year's record harvest of 11.8 billion bushels mostly due to drought damage in Illinois, eastern Iowa and Missouri, said Dan Basse, president of AgResource Co., a commodity forecasting concern in Chicago.

U.S. companies use corn to do everything from sweetening soda pop to making ethanol fuel to fattening hogs and chickens for slaughter.

Any return of rainfall now would do little to help the corn crop, which passed through its pollination period in July when it is the most sensitive to weather conditions. However, soybean plants continue to bloom through August, making it possible for that crop to recover somewhat if rains return.

Based on current conditions, Stewart Ramsey, an economist at Global Insight Inc., said he expects U.S. soybean production to fall 10.8% to 2.8 billion bushels from last year's record harvest of 3.14 billion bushels.


The shrinking harvest forecasts are fueling worry on Wall Street that Midwest-based grain processors will have fewer crops to process next year, and that meat companies such as Tyson Foods Inc. and Smithfield Foods Inc. will see their costs of feeding livestock climb.

A Smithfield spokesman said there aren't any drought-related problems so far at its hog farms. A Tyson spokesman declined to comment on the drought's effect on future costs, although he noted that the company's grain costs during the nine-month period ended July 2 were lower than the year-ago period.

Christine L. McCracken, an analyst at FTN Midwest Securities Corp., has shaved her earnings estimates for rival poultry processors Tyson and Sanderson Farms Inc. to reflect rising grain costs.

Mike Cockrell, chief financial officer of Sanderson Farms, Laurel, Miss., said corn and soybeans represent roughly 40% of the company's cost of producing chicken. "Most definitely, higher grain costs will impact the [chicken] industry and the company," he said.

Still, as crops in Illinois, Missouri and Wisconsin are wilting, many fields in places such as Nebraska, Minnesota and western Iowa, for example, are thriving.

What's more, the appearance of the Illinois-centered drought coincides with the fading of the five-year drought across the Northern Plains. Many Montana farmers, for example, are reaping record-large yields from their wheat fields this summer. Pasture conditions are improving enough there and across the Northern Plains for many ranchers to think about rebuilding their cattle herds. Likewise, the reservoirs in Montana and the Dakotas that feed the Missouri River are slowly refilling.

The upshot is that commodity analysts are projecting that corn and soybean harvests this year should still be relatively large but just not a repeat of last year's records.

Most economists expect food prices to climb at a slower rate than the 3.4% increase of last year, which was the biggest increase since 1990, when retail food prices climbed 5.8%.

Michael J. Swanson, an agricultural economist at bank Wells Fargo & Co., said he expects U.S. food prices to rise between 2.5% and 3% this year. Mr. Ramsey, the economist at Global Insight, said he expects a smaller increase of between 2% and 2.5%.

One of the biggest changes in the grocery bill from last year is the price of beef. The retail price of beef jumped nearly 12% last year amid strong consumer demand and tight supplies. This year, the USDA expects retail beef prices to climb just 1% to 2%. A beef shortage is easing in part because the U.S. in July ended a two-year-old, mad cow-related ban on importing live Canadian cattle.

With the prospect of good crops in other parts of the country, crop prices aren't rising enough to compensate many Illinois grain farmers for their losses. Corn prices are flat compared with a year ago at this time, while soybean prices are up only 17% compared with the year ago.

Some exceptions are prices of organic grains, which are jumping because much of these crops are raised in the drought area -- and so supplies are tight. The price of organic corn, for example, is 60% higher than last year, increasing the cost of feeding organic livestock so much that some farmers are delaying plans to expand their herds.

Another crop suffering disproportionately from the drought is pumpkin. Most of the pumpkins used to make pie are grown around Morton, Ill., home to a Libby's pumpkin plant owned by Nestlé SA.

A Nestlé spokeswoman said it's "still too early to tell" how much pumpkin production will fall. But local sponsors of an October "Punkin Chuckin" contest -- in which machines are used to fling the fruit -- are already worried about their ammunition.

"We may be hurting for pumpkins," said Mike Badgerow, executive director of the Morton Chamber of Commerce.
 

PORKER

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Bout time the rest of us that raises a good crop will get great prices.The area that has the drought always kills corn an soy prices for the rest of the country.They set the market as the traders work from there.Kinda like BEEF from Kansas and Nebraska ,when there is a problem there the price goes up an up.
 

Jason

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PORKER said:
Bout time the rest of us that raises a good crop will get great prices.The area that has the drought always kills corn an soy prices for the rest of the country.They set the market as the traders work from there.Kinda like BEEF from Kansas and Nebraska ,when there is a problem there the price goes up an up.

That post doesn't make sence. Drought areas usually have an increased localized price. A drought area cannot kill a price of a commodity as they haven't got a surplus of it to sell. If the drought isn't as big as the rest of the country in terms of production, then regular market forces would set the price.

Beef in Kansas and Nebraska makes a large percentage of national feeder capacity. A problem there with cattle would be a greater impact on beef than Illinois failed corn crop on feed grain pricing nationally.
 

CattleCo

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Jason,
Now you know...Porker does not have a clue!
"The area that has the drought always kills corn an soy prices for the rest of the country." What a bonehead statement,Porker!
Another documentation of his complete stupidity!! :roll:
 

PORKER

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PROOF,when Michigan and Ontario had a drought a few years back the price of corn never moved and our local elevator price was a shambles.That is because Ill. is the center of the corn belt with big yeilds and the Com.traders live there.My brotherin law lives in Arcola Ill. and he says its the worst he's seen in twenty two years with 2800 acres of corn.Cousin Bob at Arthur figures yeilds at 60 bu,corn where last year it ran 182 bu.Not sure about soys as he shiped me some cell -phone pictures that were awful.
 

CattleCo

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PROOF,when Michigan and Ontario had a drought a few years back the price of corn never moved and our local elevator price was a shambles.That is because Ill. is the center of the corn belt with big yeilds and the Com.traders live there

I did not know Michigan and Ontario were huge Corn Producers????? What is your point?
Just because an non-important part of the country is dry and the rest of the real world is having a good crop the price will probably reflect a good yield! What is your point???? IT is the total yield that reflects supply-demand-price! :roll: :roll:
 

the chief

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CattleCo:

We're west of you a little ways and a neighbor is chopping silage. Hardly an ear to be found. I figure yields in our area will be in the 60-100 range, which is about a 50% loss over previous years.

Corn prices HAVE to go upward, but I am not sure they will.
 

CattleCo

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chief,
here's the deal:
Friday is crop report day. I look for USDA to tell the truth :roll: :roll: IF you believe that ???
We will have a considerable lower corn crop. Under 10 B but the Gov will never admit to it till after the first of the year. Remember they did this a couple of years ago. I know these traders and brokers on this board think I am off the wall, but the states that have a decent crop are low corn /soybean producing states. Michigan ( whick should be sold to Canada for a nickel!!!) and MN which is a great place to go look at trees! I forgot Mall of America. I am going way out on this limb......August looks like it is going to be dry in a lot of places in the Midwest......that will kill any hope for a average Soybean crop and screw the decent corn from adding bushels and lets un not forget TEST WEIGHT!!!
I am really worried about 2006 and a expanded drought! TIme will tell
 

Denny

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CattleCo said:
chief,
here's the deal:
Friday is crop report day. I look for USDA to tell the truth :roll: :roll: IF you believe that ???
We will have a considerable lower corn crop. Under 10 B but the Gov will never admit to it till after the first of the year. Remember they did this a couple of years ago. I know these traders and brokers on this board think I am off the wall, but the states that have a decent crop are low corn /soybean producing states. Michigan ( whick should be sold to Canada for a nickel!!!) and MN which is a great place to go look at trees! I forgot Mall of America. I am going way out on this limb......August looks like it is going to be dry in a lot of places in the Midwest......that will kill any hope for a average Soybean crop and screw the decent corn from adding bushels and lets un not forget TEST WEIGHT!!!
I am really worried about 2006 and a expanded drought! TIme will tell

You sure are a Dumbass cry baby Mn is not all trees The bottom 1/2 and the Red River Valley are all great crop producing areas take your turn with a Crop failure go cash your Insurance check and the disaster payment YOU will get.Maybe you could get a job as a greeter at WALMART well maybe not.
 

CattleCo

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Denny,
MN produces less than 5% of the nations corn crop.........................I do not think that is a big deal. Hell, MN could have 200+ bu corn this year and that will not make a lot of difference. MN has nice trees! If you want to see CORN come to Iowa, IL, IN when it rains!! :roll:
 

Denny

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CattleCo said:
Denny,
MN produces less than 5% of the nations corn crop.........................I do not think that is a big deal. Hell, MN could have 200+ bu corn this year and that will not make a lot of difference. MN has nice trees! If you want to see CORN come to Iowa, IL, IN when it rains!! :roll:

Been there when it rains and your corn looked good we all have weather disaster's just dont cry the sky is falling.We will deal with what ever comes but worrying about it wont make it better.But I wont go slamming your state as it has it's downfalt's also. :wink: p.s. we got 2 inches of rain here last night and its still coming down wish I could share it with you..but the trees need water.
 

CattleCo

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Denny,
Who's crying? Drought is part of the deal. Glad you got some moisture. Don't knock those trees......they are a good cash crop!!! Just for the record, the soybeans are really showing the stress now. What is going tobe interesting is the test plots! We are gonna get a good handle on what hybrids handle the stress.......
Have a good one! I ruined a tire on a baler last week, this week is your turn!
 

Denny

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CattleCo said:
Denny,
Who's crying? Drought is part of the deal. Glad you got some moisture. Don't knock those trees......they are a good cash crop!!! Just for the record, the soybeans are really showing the stress now. What is going tobe interesting is the test plots! We are gonna get a good handle on what hybrids handle the stress.......
Have a good one! I ruined a tire on a baler last week, this week is your turn!

I didnt need a turn I had put in a new bearing last week on the main drive on the baler oh well at least there's hay to bale.My corn was planted on june 6th it is all tasseled out and is about 10 to 12 ft high will make good silage.
 

CattleCo

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Denny,
Question of the Day......Would you rather have a broken baler or the little woman raising hell with you? We can fix or trade off the baler!! :D
 

Denny

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CattleCo said:
Denny,
Question of the Day......Would you rather have a broken baler or the little woman raising hell with you? We can fix or trade off the baler!! :D


Well being the baler's easy to fix sometimes them women are a bit tricky.I'll take the baler repair it can be done easy and away from the HONEY DO LIST. :lol:


The first real money I made ranchin was when I got my wife a job in town.
 

CattleCo

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"
The first real money I made ranchin was when I got my wife a job in town."
Denny,
At least we have 2 honest folks on this board..........priceless!! :lol:
 

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