Climate change, economy, environment, retirement

Climate Change Affecting Crops in 2019

Thanks to endless rain and historic flooding that has stretched on for months, many farmers have not been able to plant crops at all, and a lot of the crops that have actually been planted are deeply struggling. What this means is that U.S. agricultural production has the possibility of being way, way down this year.

According to the latest USDA report, corn, wheat and soybean production are way behind expectations. Last year, 78 percent of all corn acreage had been planted by now. This year, that number is sitting at just 49 percent. And the percentage of corn that has emerged from the ground is at a paltry 19 percent compared to 47 percent at this time last year. We see similar numbers when we look at soybeans. Last year, 53 percent of all soybean acreage had been planted by now. This year, that number has fallen to 19 percent. And the percentage of soybeans that have emerged from the ground is just 5 percent compared to 24 percent at this time last year. In other words, we are going to have a whole lot less corn and soybeans this year. Farmers in the middle of the country desperately need conditions to dry out for an extended period of time, but so far that has not happened. (1)

State numbers reveal where impacts are more acute. As of Sunday, Iowa farmers had 70% of that state’s corn crop planted vs. a 89% five-year average. Illinois farmers have 24% of their corn seeded, behind a 89% five-year average. Indiana has 14% planted vs. a 73% five-year average. In the western Corn Belt, Nebraska farmers have 70% of their corn planted vs. a 86% five-year average.

Also, 19% of the U.S. corn has emerged vs. a 49% five-year average.

In its Crop Progress Report Monday, the USDA pegged U.S. corn planting at 49% complete, behind the 80% five-year average. (2)

In May NOAA announced that this has been the wettest 12 months in US history. Precipitation over the last year (May 2018 to April) in the United States has been extraordinary. An average of 36.2 inches has fallen over the Lower 48, the first time it has topped 36 inches over a 12-month period in over 120 years of record-keeping. This amount is more than six inches above average. (3)

Heavy precipitation extremes have been a staple of U.S. climate conditions over the past year whether hurricane Florence’s record setting rainfall in the Carolinas, the constant rain in the midatlantic states, a series of 20 atmospheric rivers soaking California, and flooding resulting from the “Bomb Cyclone” and similar storms in the central United States.

As a result of reduced plantings and outlook, contract prices for wheat and corn have surged 15% between 5/13/2019 and 5/24/2019. A decrease in the supply of commodities tends to drive up the price companies have to pay to obtain those commodities. (4)

In addition to the slow pace of planting, farmers will find themselves struggling with other issues that can reduce supplies farther. In an interview with Kevin Fulton, a multigenerational farmer, he mentioned that many farmers have lost their storage bins as a result of the flooding. Many of these bins were already full of product harvested last year and were awaiting sale. As flood waters rose, the bins collapsed and product was destroyed. Rebuilding infrastructure and cleaning up the mess created by the floods will take time. (5)

In addition, The USDA has no mechanism to compensate farmers for damaged crops in storage, a problem never before seen on this scale. 

With farm incomes declining for years before the flood, many farmers had planned to sell their grain in storage for money to live, pay their taxes or finance operations, including planting this spring.

“They spent all last year raising that crop, putting it in the bin and they maybe already have it marketed,” U.S. Agriculture Under Secretary Bill Northey said. “And now they’re going to have to spend time just to get rid of it – just to clean the place up.” (6)

“It’s still a weather market despite all the rhetoric on the trade front, and the weather has not cooperated the last few weeks to allow timely U.S. planting and we’ve set ourselves up for a potentially bullish situation. 

Now we have a situation where little corn is in the ground and that which is planted is struggling with emergence. I could see a scenario where we get very poor crop ratings with the first report of the season the last week in May. This on top of poor planting progress and a potential E15 announcement that has been promised by June 1 would all be friendly to the corn market.” (7)

Climate change can have a dramatic impact on commodity prices around the world as shown in 2012-2013 when grain prices spiked due to drought in Russia and Australia. That lead to global unrest as food prices rose, including the Syrian conflict and subsequent refugee problem.

To discuss how these issues can affect your investments and your plans for retirement please reach out to me; I’m always happy to chat by phone.

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2019-80528 Exp 05/21