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In Indiana, Drought Fears Remain

Farmers in northern Indiana were relieved to see a good rain yesterday, but the prospects for more summer drought remain.

Chris Hurt, Purdue Ag Economist, told a group of farmers at this week's Purdue Farm Management tour that Indiana crops were estimated to be only 37% good or excellent, compared to 82% in the Dakotas and 62% in Iowa and Nebraska. Illinois and Ohio corn and soybeans are ranked 52% good or excellent.

Even so, it's too early to panic, Hurt says. "It's hard to say anything concrete about a weather market, because economists are relying on meteorologists, which puts us all in deep, deep trouble," he says.

Hurt notes that in many cases, a 'natural hedge' occurs when a production area as big as Indiana suffers a prolonged drought. "When Indiana has a poor crop, there is a tendency for prices to be higher," he says.  

Since 1980, in years when yields were down, over half those years revenue was up due to higher grain prices. That is particularly true in recent years because overall corn and soybean stocks have been tight. In 2010, Indiana corn yields were down 8%, but prices were 47% higher, and revenues came in looking sharp. The same was true in 2011.

"Of course, the difficult situation can come if only Indiana has a small crop that is offset by high yields in other parts of the country," he says.

Early planting made corn vulnerable to early season drought. Excessive heat and dryness can really damage yields during pollination. "We're right on the cliff," Hurt says. "These corn yields are going to head down quickly without a change in the weather."

For soybeans, late July and early August weather is most critical.