Analyst warns of entended drought
January 9th, 2013
Omaha, NE – As much of Nebraska sits under a blanket of snow and ice, worry about last yearâ€™s drought seems to be a distant memory. But Darin Newsom senior analyst at Telvent DTN which provides real time market and weather information says the most recent storms didnâ€™t do much to quell concerns over a lack of moisture.
“The knee jerk reaction would be yes,” Newsom says. “The traders saw the snow fall in the southern plains they saw it fall in Nebraska and they saw it fall in most of the Corn Belt.”
“They say â€˜Wow, this is certainly going to help the situation,â€™ Newsom says. But the reality is the western Corn Belt in particular is in such a deficit in regards to soil moisture that itâ€™s going to take more than one or two large snow systems to improve the situation.”
Newsom says that there are portions of the Corn Belt, particularly in Iowa and western Illinois where there is higher quality soil. Newsom says in those places it doesnâ€™t take as much moisture to regenerate the soil up to standard. But that isnâ€™t the case in Nebraska where nearly 80 percent of the state is currently classified under the most severe level of drought according to the latest U.S. Drought Monitor. Even more alarming, Newsom says is the possibility of an extended drought which he says could cause demand to decrease because it would threaten a recovery in production.
“The initial thought is â€˜Wow, this could push prices up again,'” Newsom said. “But letâ€™s remember so much of whatâ€™s happened, has happened on the backs of the demand markets thatâ€™s been built up in corn over the years, basically going back to 2005. So if we cut supplies again, and we are facing another year of tight supplies, I think what we do is actually more damage to that demand market, we see feed demand go away, we see export demand go away and possibly a change in ethanol demand (which) would gain bigger traction in 2013 than it did in 2012. ”
Newsom says if the current drought continues he sees many problems arising but the biggest would be with production.
“I think another drought would certainly cut into cut into production again particularly in corn,” Newsom says. “And possibly bring about the end of this demand market that has brought higher prices to agriculture in general.”
On top of a lack of moisture Nebraska has received over the last year, a report released last week by the National Oceanic and Atmospheric Administration – shows Nebraska is one of just two states that broke its record for warmest and driest year on record in 2012.
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