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Prices Suggest Revenue Indemnities; Wheat Crop Underway

Oct 28, 2015

Three-quarters of the corn has been harvested in the 18 major states, seven points ahead of the five year average. Soybeans also are seven points ahead of average, at 87 percent. Winter wheat, on the other hand, is running two points behind its 85 percent average. Soft red winter country is ahead of normal, while hard red winter states are somewhat behind.  

If you haven’t already reported production on your spring crops, do so as soon as possible. With only two trading days remaining in October, the harvest prices for corn and beans are averaging about $3.83 and $8.94 respectively, well below the spring guarantee of $4.15 and $9.73, suggesting revenue indemnities based on prices are quite possible in many counties. Above average yields would make that less likely, of course. 

El Nino: Little Impact on Wheat

The strong El Nino has spawned widespread headlines regarding its likely impact on commodity prices. However, according to the Food and Agriculture Organization of the United Nations, “No precise quantitative association between the occurrence of El Niño and changes in agricultural production has been established and it is difficult to forecast precisely the impact of El Niño in specific areas.”

Purdue University agricultural economist David Widmar looked at the 20 warm Oceanic Nino Index (El Nino) events and the 20 cool ONI (La Nina) events that took place between 1951 and 2014 and U.S. wheat yields during the same time. His conclusion: There is no correlation between El Nino and yield on a national basis.

At the national level, El Nino and La Nina conditions both resulted in above-trend yields an equal number of times – 45 percent of the time. Overall, during the same time period, above-trend yields were seen nearly as often – 42 percent of the time. So one might say yields under both conditions were close to average.

In addition, in years when yields were well above trend, both El Nino and La Nina have been experienced. The highest above-trend yield (6.5 bu. above in 1983) corresponded with El Nino conditions in the previous fall (at planting), as is the case this year. But of the eight highest above-trend yields, four followed an El Nino in the fall and four followed a La Nina.

Wheat State Impacts of El Nino

However, some states seem to have slightly stronger ties.  Across the Plains states, the historic probability of above-trend yields during El Nino conditions were high – 65 percent or more – and that’s especially true in the Southern Plains states of Kansas (65 percent), Oklahoma (65 percent) and Texas (70 percent), here about half the winter wheat is planted. However, yields can be worse rather than better: “In Kansas, the top state in planted acres, harvests following an El Nino fall saw yields as high as nearly 12 bu. above trend to as low as 10 bu. below trend – quite a range.”  So, based on Widmar’s study, it’s impossible to predict an El Nino impact on U.S. wheat yields.

crop map
Looking at the world wheat market, it also doesn’t appear El Nino will have any impact on prices. USDA projects a third consecutive record world wheat crop in 2015/16, estimated at 732.8 million metric tons (mmt), leading to record supplies. Australia, where El Nino often leads to dry weather and lost wheat yields, is expected to harvest 25.3 mmt, a 7 percent gain over last year, according to the September estimate from the Australian Bureau of Agricultural and Resource Economics and Sciences. USDA’s latest estimate is even higher, at 27 mmt.

Source info for map:

Agricultural Economic Insights; Data Sources: USDA NASS, National Weather Service’s Climate Prediction Center