Searing Sun and Drought Shrivel Corn in Midwest

I had noted the drought conditions in the Midwest in our Week 27 Performance post that would at some point begin to affect both consumers and corporations.

As we noted in our post higher crop prices will ultimately get passed onto consumers exactly what some struggling Americans do not need.  However some of the price increase could be absorbed by corporations thus lowering their earnings putting pressure on stock prices.

One of our main investment strategies at DWCM is the long-term belief in agricultural names as the world population continues its growth spurt.  This drought condition in the US may create a buying opportunity for those interested in the Ag space for the long-term.

The New York Times touches on the drought conditions in the Midwest with this piece

• Crop insurance agents and agricultural economists are watching closely, a few comparing the situation with the devastating drought of 1988, when corn yields shriveled significantly, while some farmers have begun alluding, unhappily, to the Dust Bowl of the 1930s. Far more is at stake in the coming pivotal days: with the brief, delicate phase of pollination imminent in many states, miles and miles of corn will rise or fall on whether rain soon appears and temperatures moderate.
• For farmers, especially those without insurance, the pressure mounts, they say, with each check on the morning weather forecast, with every stifling walk through a cloudless field. But the worries have quickly spread: corn prices have risen on the Chicago Board of Trade in recent days on the likelihood of a smaller crop, as analysts weigh the broader prospect of rising prices for food and effects on ethanol production.



Aaron P. Bernstein for The New York Times

• “You wake up every morning with that churning in your stomach,” said Eric Aulbach, a farmer here in central Indiana, who gazed out across a field of corn he ought not to be able to gaze across by now.
•  Some experts are less pessimistic, saying the fate of the nation’s corn crop, the largest in the world, cannot be known until later in the summer, after pollination, when it is clear whether kernels or empty spaces fill the ears of corn and whether enough ears appear at all. They note that the driest, hottest conditions have steered clear of some crucial Corn Belt states, including Minnesota, North Dakota, South Dakota and western Iowa, the nation’s most prolific corn producer. In those states, the crop appears healthy and strong — not to mention increasingly valuable. And while much of the nation’s corn is not protected by irrigation, some of it, especially in Nebraska and Kansas, is, though those areas have felt the effects of drought, too, requiring more water and, potentially, driving up costs.
• American farmers had high expectations for corn this year, planting 96.4 million acres of it — a number 5 percent more than the previous year. High prices and an expectation of strong returns made this year’s planting the largest corn acreage in 75 years. Those were heady times in farm country, with farmland prices rising on and on, even as the recovery moved sluggishly in other realms.