Drought Divides Farming Winners and Losers.

"The most widespread drought in a decade is dividing the U.S. farm sector into winners and losers.

With more than half of U.S. corn and soybean acreage facing drought conditions, some farmers are calculating whether insurance payments will cover the cost of the crops they have sown this year.

As of June 27, 65% of the Midwest was in a moderate drought or worse, the broadest such area in a decade, according to the U.S. Drought Monitor. The U.S. Department of Agriculture said 70% of the country's corn production area and 63% of soybeans were affected by drought. The five-year average for U.S. corn in drought before this year is 18%, according to federal data, and 15% for soybeans.

In Coal Valley, Ill., where Megan Dwyer's family raises corn, soybeans and beef cattle on 700 acres, the fate of the farm's year depends on how much rain falls over the next few weeks.

"With the drought, we might not even have a crop to sell this year," said Dwyer, a fourth-generation farmer, at The Wall Street Journal's Global Food Forum event in late June.

Around one-third of winter wheat grown in the U.S. is expected to be abandoned, according to federal data, because the poor quality isn't worth the cost to harvest it this year. That would represent the highest rate of abandonment since 1917.

Some livestock producers and meat companies are bracing for higher feed bills that could follow a smaller-than-expected harvest.

Farmers whose fields remain green, however, are set to pad their incomes. Farmers outside of drought territory could get another year of solid income just as corn prices were on the decline, said Scott Irwin, an agricultural economist at the University of Illinois Urbana-Champaign.

"My grandmother always told me to pray for drought in Illinois," said Irwin, who comes from a family of Iowa farmers.

Higher prices for crops also improve prospects for global crop shippers such as Cargill, Archer Daniels Midland and Bunge as concerns over supplies prompt grain buyers to make advance purchases.

ADM is estimated to earn more than $3.7 billion in profit in its 2023 fiscal year, while Bunge is expected to make $1.8 billion for the year, according to FactSet. ADM and Bunge had no comment.

"We don't see weather volatility getting any better," said Bunge Chief Financial Officer John Neppl at a May investor conference. "When you have a global platform like we do and you have all the origin-destination combinations that we can put together, that really bodes well for a business like ours."

Wheat futures were up about 10% in June. Corn and soybean futures, which had traded higher as drought spread, have fallen in recent days as traders responded to wetter forecasts in the Midwest and expanded corn acres detailed in a USDA report.

How the weather ultimately impacts farmers' harvests this fall could hinge on the next few weeks, analysts and farmers said.

Farmers' drought math can have mixed implications for companies such as Corteva, Bayer, Deere and CNH Industrial, which sell farmers seeds, pesticides and machinery.

While higher crop prices can mean more money for farmers to invest in their next growing season, analysts said, if the drought decimates too much U.S. farmland and farm income, farm suppliers will suffer as growers transition to cheaper generic seed purchases or put off equipment purchases.

Corteva said its success depends on farmers succeeding, and droughts can impact their productivity. The company is developing more drought-tolerant corn, a spokesman said. Bayer, Deere and CNH had no comment.

Dry conditions bring new pests and diseases that require additional farm chemical purchases. Joe Sinclair, president of the farm retailer Quality Ag Services in Iowa, said insecticides sales will be on the rise this year as the dry weather brings pests like two-spotted spider mites into farmers' fields.

Higher grain costs from drought make it more expensive to feed cattle, hogs and chickens.

Many hog farmers are struggling to make a profit, and cattle ranchers have been shrinking their herds over the past year as their feed bills go up.

Dairy producers will need to decide whether to shrink their operations or eat the higher feed costs until the market moves back in their favor, said industry officials. Ethanol producers paying higher prices for corn could be faced with the decision of whether to keep their plants running at lower profit margins or to cut production, executives and analysts said.

For farmers with drought-withered fields, crop insurance can help growers come close to break-even and defend against bankruptcy, said Matt Bennett, an Illinois farmer and co-founder of brokerage and consulting firm AgMarket.Net. But farmers will still struggle to cover costs for fertilizer, fuel, seeds and other expenses.

"This was the most expensive crop ever put into the ground by a U.S. producer," Bennett said." [1]

1. Drought Divides Farming Winners and Losers. Thomas, Patrick. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 03 July 2023: B.1.