Crops Face the Dreaded “Dome of Doom”: Our Number Was Up

heat domeAs far as the hype goes, it is hot out there. Yes, I’m sure you are getting quite tired of being reminded that this is July and it’s hot.  Over a period of 25 years writing this column I’ve seen a lot of hot weather.  In fact, I was writing this column when the 1988 drought scorched the Corn Belt, taking us to New Year lows.  I was here when Ontario walked through 2001, some of the worst crops we have ever seen.  The dreaded “dome of doom” is a term I rarely use, especially with so much bad hot weather in my past.  However, this past week it moved into the popular agricultural press.  It’s here, or at least that’s what some are saying.

I found it interesting this week that many younger commentators had no idea about the dreaded “dome of doom.”  I had mentioned it on twitter a couple times and many of the traders who follow me had never heard of it.  I even corresponded with DTN meteorologist Bryce Anderson a few times about how hot it was but of course it was nothing like 1988.  Bryce concurred with that and said 1988 was a very uniquely dry and hot year.

I don’t feel that the present hot and dry weather, although disastrous for those with no moisture is even close to some of the hotter drier years we have had.  For instance in the western Corn Belt, the crop is doing fairly well.  It got off to a roaring start and has basically not being hurt significantly by the “dome of doom”.  On the other hand the Eastern corn belt with all the problems of late planting, flooding, poor root system, now have the hot and dry.  Yes, we have been through that before, and in 2011 we have a lot longer way to go before we are close to disaster levels.  It’s just that we had such a razor thin margin this year in the supply and demand tables for corn; any production hiccup would be a problem.  Well, this is the hiccup.

John Sanow, my fellow DTN analyst laid it out pretty clearly in his latest column, “Worst-Case Scenario.”   He said that if 2011 final yield on corn dropped 7.4% like it did in 2010, (from initial predictions) which puts US final corn yield at 149.7 bushels per acre in 2011.  He went on to assume the harvested acreage of 84.9 million acres, which would bring production in at 12.709 billion bushels.  At the end of the day, worst-case scenario that would bring down ending stocks to approximately 109 million bushels!  That is an incredulous figure and shows you how razor thin supply is versus demand.  You would think under this production scenario, there would be a price explosion.

So maybe the story is no different than it’s ever been?  Sure, on June 30 when the USDA raised corn acreage to 92.3 million acres, we all assumed there would be enough corn.  The June 12 USDA supply and demand report showed a huge increase in corn demand.  So the market is getting a bit of confused signals from USDA, meanwhile the dreaded heat “dome of doom” has moved in, at least in the popular press lexicon. Simply put, we are at a crossing point in this production year to see whether supply makes it easy or comes up way short.

On the ground in Ontario it is not pretty in many production areas.  Where last year North of Toronto producers enjoyed 200+ bushel corn with heavy test weights, late planted crops are now shriveled and curled.  This is not the case everywhere in Ontario and Québec but there is more of it than we would like.  Production is likely to be down significantly in Ontario, especially if the dome of doom continues beating us up every day.

I have walked this path before, 1988, 1991, 1993, 1997, 2001, 2002.  Of those years 1988 and 2001 were the worst ever on my farm.  There are many constants in agriculture but one of them is always the unpredictability of production.  Last year was a bin buster in Ontario and Québec, not so much in Western Canada.  This year it might not be half as good for many producers.  That happens in farming.  Yes, I hate it when that happens, but I’ve seen it before.  For those young enough not to remember welcome to the real world.

If there is silver lining, it’s the bullish market structure.  Commercials are increasingly bullish as carries in outward futures months weaken.   The world is still crying out for we produce and demand is increasing, especially from Asia.   So for many of us, we look to the skies waiting for redemption.  The rains will come.  Remember last year with the Russian drought.  It just so happens this year, our number was up.