Fundamentally Speaking

Joel Karlin
DTN Contributing Analyst

The just released monthly crop condition reports from a number of states highlights deteriorating winter wheat conditions especially in the hard red winter wheat areas.

This reminds traders that while the market focus is now on South American weather, especially the deteriorating conditions in Brazil it will not be too long before the focus shifts to growing conditions in the Northern Hemisphere.

In this regard, the continuing drought remains the number one issue.

We have been curious about how U.S. crops fare the year after a drought.

Keep in mind that the end of December U.S. Palmer Drought Severity Index (PDSI) was -5.47 and anything less than -4.00 is classified as extreme drought.

The end of December PDSI was not only the worst of 2012 indicating a worsening situation as the year went in but is the lowest national PDSI since April 1981.

The accompanying graphic shows all the instances since 1960 where one of the top 18 corn growing states had an end of December PDSI at -4.00 or lower indicating extreme or worse drought.

These events were plotted against the final percent that corn yields in that states deviated from the 1960-2011 trend the following year.

As an example, the worst drought number we found was the December 1976 PDSI in Wisconsin of -7.01.

Yet, the final 1977 Wisconsin corn yield was 104 bushels per acre, 10.2% above the estimated 94.4 bpa trend that year.

It is interesting that the three worst cases had final corn yields above trend.

This includes last year’s final Texas corn yield of 130 bpa, 2.6% above trend despite a December 2011 PDSI reading of -5.78.

Still, of the 30 instances of PDSI readings of -4.00 or lower, final corn yields in those states were below trend 19 times or about 67% of the time with an average negative yield deviation of -3.7%.

We suspect and we will do some work on this that those states that were able to recover from severe drought had outstanding growing conditions in terms of temperatures and precipitation the following year.

(KA)

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