Agriculture/Farming and Energy & Environment and Environment

Drought could have mixed impact for Indiana farmers

July 2, 2012

Some Indiana farmers facing big crop losses because of this summer's drought could end up making higher profits this fall, but others stand to lose money.

Less than half of the normal amount of rain has fallen across much of the state since May 1. The National Weather Service said last month was the driest June on record for Indianapolis and Evansville.

Corn is beginning to tassel early in the dry weather, especially in southern Indiana, where pollination is largely complete, Purdue Extension economist Chris Hurt told The Associated Press on Monday.

"Stress at time of pollination is the single worst factor for crop yields," he said, and the water-starved corn and soybean crops are likely to produce smaller yields.

That's bound to affect most farmers, who typically sell 20 percent to 40 percent of their anticipated harvest in advance, promising to deliver a specified amount of grain to buyers and at a guaranteed price.

Farmers could lose money if prices rise above their locked-in rate due to supply and demand, Hurt said. In that case, they would have made more money by not selling in advance. And if they can't deliver enough grain, they have to buy back the bushels they can't supply.

The more farmers sold in advance, the harder the financial hit they are likely to take, Hurt said. If a farmer sells half of his crop in advance, and then only half of his expected crop comes in for harvest, he would have to sell his entire crop at the promised price even if grain prices are higher at harvest time, he said.

"We've been hearing of producers calling their grain managers and talking with them about the possibilities of dealing with these yield reductions," Hurt said previously in a Purdue news release. "Right now, it's hard to say what will happen because nobody knows where grain prices are going to go."

But if yield losses are widespread enough this year, higher prices could help compensate farmers for some of their lost crop, he said.

"When a major production state has reduced yields due to something like drought conditions, prices generally go higher than yields go down," Hurt said in the news release. "So if yield losses for an entire region or a state were 10 percent but prices go up by, say, 15 or 20 percent, actual revenues in a drought year can be higher than in a year when you have normal yields."

The drought also could increase the value of stored grain left over from the 2011 crop season.

"We have a very bullish situation ahead if the drought continues," Hurt said last week. "We could have quite an explosive market. But that could all change if we get rain."

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