Iowa Public Television

 

Drought Dries up Cotton, Corn and other Economies

posted on July 27, 2012


Wall Street shrugged off a disappointing report on the U.S. economy late this week on growing hopes for fiscal intervention – both in Europe and America. 

The Dow Jones Industrials Index surged 212 points Thursday after the European Central Bank announced it would do whatever it takes to save the Euro.

The rally continued Friday despite a Commerce Department announcement that U.S. Gross Domestic Product grew at an annual pace of just 1.5 percent from April through June.  That’s down half-a-point from an upwardly revised 2 percent rate in the first quarter.

The weaker-than-expected GDP figure boosted investor hopes for the United States Central Bank – better known as the Federal Reserve – pumping more money into the economy to stimulate spending.

And the Agriculture Department predicted this week that record drought gripping half the country will help push retail food prices up by 3 to 4 percent next year. 

Meat, poultry and dairy products are expected to increase the most because feed typically represents their largest input cost.  But the arid conditions are affecting other commodities, as well, including a popular southern staple.

The same problem plaguing upper Midwest row crops is being felt in Southern Plains cotton fields. Planted acres look green but closer inspection reveals the worst.

Mark Nichols, Altus, Oklahoma Cotton Farmer, Oklahoma Cotton Council: “If we could get some timely rains we could go ahead and make a decent crop but this heat has kinda kicked in and if it stays like this we’re gonna go down in a hurry.”

Cotton in Oklahoma is grown on both dry-land and irrigated fields. Last season, a good portion of the crop failed emerged and what did come up was hardly worth mentioning. USDA reports 75 percent of the Sooner State’s cotton is in fair to very-poor condition. By some indications much of what has emerged is expected produce 50 percent or less of a normal crop.

In southwestern Oklahoma, where more than half of the state’s cotton is grown lack of rain has contributed to the level in nearby reservoirs falling by nearly 80 percent.

Mark Nichols, Altus, Oklahoma, Oklahoma Cotton Council: “You know last year, when we didn’t get our cotton up we were able to stop putting those inputs into it. Well as long as we have a viable crop and some hope, we’ve got to continue to spend some money on this crop it’s make it pretty hard for us. Not knowin’ what we are gonna come out with.”

Concern over bad weather two years in a row has some worried about the effect on the local economy. In 2010, 120,000 bales of cotton were processed at the cotton gin in Altus, Oklahoma but last year the doors to the local business never opened.

Randy Boman, Oklahoma Extension Cotton Specialist:

“So you can think about all of the inputs and all of the associated economic activity that would have been surrounding the 120,000 bales, the bringing it in, the ginning of it, the movement of that product, both the seed and the lint and then going to a zero in 2011 that’s a really tough hit on the economy.”

Faced with prospects of corn prices falling to $4 a bushel earlier this season, the Iowa Farm Bureau planned an economic summit. Now, with corn closer to $8 a bushel, discussion in Ames this week, was dominated by the weather.

Iowa State University Extension Climatologist Elwynn Taylor told the convention attendees, an end may be in sight.

Elwynn Taylor, Iowa State Extension Climatologist: “The low pressure has gone from the Gulf of Alaska that has been persisting there for six months. And responsible primarily for the fact that we weren’t getting any weather disturbances here, they were all going up to the Yukon. The low pressure was sending them there. That’s exactly what it did in ‘88, that’s exactly what changed when the ‘88 drought finally broke, it took it about 6 weeks, for that to take place, we’re 3 weeks into that, that would give us three more weeks until this is over, because it is doing the same thing as then.”

But the precipitation, if it ever materializes, will be too little, too late for many Iowa producers, whose crops withered again this week under four consecutive days of triple digit heat.

Water sources have started to evaporate, forcing some municipalities to call for voluntary conservation in hopes of avoiding mandatory rationing.

Taylor says 8 percent of the U.S. corn crop has already been lost. He expects that figure to double if hot and dry weather patterns persist. And he predicts inconsistent production in the years ahead.

Elwynn Taylor: “This is the 4th period of consistent yields. The other three periods of consistent yields since we started keeping records are 19 years long each. Last year was year 19.”

Now, Taylor says we’re entering a period of 25 years when volatile yields become the “new” normal.

Taylor: “All of your risk management that you have been doing to take account of the ups and downs of the yield, as miniscule as they are, in the last 19 years, have just been practice so you have a feel for it.”

Corn and soybean producers, of course, aren’t the only ones impacted by the drought. Reduced production has serious implications for the ethanol industry.

Geoff Cooper/Renewable Fuels Association: “We are kind of expecting that 2012 will be first time since 1996 we haven’t seen growth in production.”

Geoff Cooper of the Renewable Fuels Association says his industry has run at 85% capacity since the beginning of the year.

Faced with soaring corn prices, more than 20 ethanol facilities have shut down.

Cooper says the ethanol industry will meet the 35 billion gallon production mandate, but the months ahead are going to be challenging.

Geoff Cooper/Renewable Fuels Association: “It is going to be certainly, a difficult operating environment for the ethanol industry the next 12-18 months.”

Livestock producers are watching their profit margins shrink due to increased corn prices. Beef production is off nearly 4 percent in 2012, which pork looks to expand, albeit slowly.

Chad Hart, Iowa State University’s Extension Economist says the record commodity market runs of 2012 reflect a similar situation in 2008, with one notable exception. 

Chad Hart/Iowa State University Extension Economist: “That year weather improved, demand did not and we saw things drop off the table. This year we know that weather condition is having an impact on production that will hold prices up unlike ‘08. But at the same time we have to recognize that high price is eroding the demand for that crop. It will put a top to this market. Because while we may able to grow some corn,  people may not be able afford it.  I’m looking at the livestock and ethanol industry. There’s only so much they can pay for corn.”


Tags: agriculture corn cotton drought ethanol Iowa livestock news Oklahoma soybeans