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800-683-8000(March 16, 2000) SOYBEANS: News from the U.S. Commerce Secretary that the U.S. is "in the midst of a worsening drought" and that the drought is likely to get worse before conditions improve. That news drove the grain markets sharply higher because it presents such a serious threat to U.S. farmers and agricultural output. Commerce secretary William Daley said "the news is not good." Drought is threatening much of the Midwest for the first time in a decade. The dry conditions are not new problems this is a pattern which began back in the fall. A dry fall and winter have left much of the farm belt without adequate soil moisture. The U.S. produces about half of the world's supply of soybeans, and it's worlds largest producer and exporter of corn. That makes us the bread basket of the world. So; when we have weather problems, the world has potential food supply problems. A lot of the blame for the dry weather comes from La Nina, which has a tendency to produce below--average rainfall during the key growing months. Winter and spring is when nature usually replenishes the moisture in the soil. The National Oceanic and Atmospheric Administration says, "The U.S. winter of 99-00 was warmest on record." These records are based on a 105 year statistical history. NOAA noted that dryness also characterized this winter season. Many areas from the Northern Plains to New England had their latest start date for first snowfall of the season, latest start date without a temperature below freezing, longest snow-free period, or longest period between subzero temperatures. The lack of snow in the Midwest this winter has left the soil parched, and summer crops threatened. In the heart of the nation's bread basket, fields are the driest farmers have seen in a generation. Plows, usually parked in several feet of snow are out tilling land that has yet to see a major snow fall. What little has fallen has not done much good. It takes a foot of snow to equal an inch of rain. The lack of soil moisture could have serious results on prices. According to The National Climate Predictions Center, this mild Midwest winter has put the region at high risk for a summer drought. The last time a drought had an impact on grain prices was 1988, but that drought started in the fall of 1987 and in the spring of 1988 the rains were insufficient and soybean prices rose from the $6.50 level to more than $10.00 a bushel by July. So; the huge bull market for grains, and in particular soybeans, started in the fall of 1987. According to the USDA, this year in the southern Plains it is a dry and as critical as 1988. So with each passing week, the sporadic rainfall begins to get more serious and threatens a breakout to the upside led by weather uncertainties. For many farmers this is just what they need, a weather market to drive prices higher. The prices farmers were paid this winter for their wheat and corn were the lowest in 13 years. Soybean and cotton prices were at the lowest levels in a quarter century. So; with the U.S. government weather experts forecasting drought conditions for almost half the nation. "It's going to take a large, large amount of precipitation to bring us out of it, and we don't see anything on the horizon to bring those types of patterns in," according to Jack Kelly, Director of The National Weather Service. The NWS weather warning encompasses the heart of the production belt for corn and soybeans, which is Nebraska, Iowa, Illinois and Indiana. Thanks to a dry fall and winter, the soil in parts of Nebraska is so parched that chances for a normal crops this year are already fading. In Iowa, which has only half of its normal soil moisture, shallow wells are going dry. Based on historical records, Illinois officials say there is a 50% chance that the state's dry conditions will continue for 12 more months, and that there is a 25% chance of a severe drought. In a typical year, there is only an 8% chance of a major drought across Illinois. In Indiana, the level of several rivers has fallen to record lows for this time of year. There are parts of the Mississippi River that are 11 feet below normal. Only time will tell if 1988 can repeat itself. But; with the dry fall and winter of 1999, already in place, the year 2000 could bring fireworks to grain prices before the 4th of July.
RECOMMENDATION--Buy soybeans and corn call options on any pullbacks.
Richard Padron
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