"U.S. corn yields have been below trend for three years, and more farmers now recognize the possibility of four poor crops in a row," Hurt says. "This, of course, means that normal crops and sharply lower prices are far from a reality. Prices won't move sharply lower until crop production becomes more assured as the 2013 season progresses."
Futures markets already are taking into account the possibility of a short 2013 corn crop and building in a greater-than-normal weather risk premium. While the amount of the premium is unknown, Hurt said 50 cents to $1 per bushel isn't out of the question.
"As long as the drought threat remains as large as it is today, new-crop corn prices could stay higher by the risk premium," he says. "If the drought risk were to be eliminated, then new-crop prices would likely drop.
"The weather threat could be reduced if more rain arrives but can't be eliminated until next year's corn growing season reaches mid- to late July."
So while a return to normal production could mean $5.50-per-bushel corn, Hurt says continued drought in key production states could still translate to new-crop corn prices of $8.50 per bushel.
The uncertainty makes risk management difficult for corn growers.
"Farmers will have three key tools to deal with the financial risk from this wide range of possible outcomes: federal crop insurance, the new government farm program and their own marketing decisions," Hurt says.
Farmers weathering 2012 are learning plenty about everything from crop insurance to seed genetics as parched conditions reshape farm business across the country. Consider our 5-part approach to moving ahead after the toughest drought since the 1930s.