Drought Wildcard Looms Over 2013 Farm Economy

Crop-related drought expenses expected to average 10% higher in 2013.

Published on: Feb 1, 2013

Drought and the strength of the U.S. dollar will be the key players in the 2013 Southeast farming economic game. But those two players can make for the proverbial "The Good, the Bad and the Ugly" storyline.

The good
"The one thing we do have going for us, and in the last few years, is this weak dollar. … That weak dollar makes our ag products more affordable to our international customers. And that's good for us on the export side of thing," said Curt Lacy, University of Georgia Cooperative Extension economist, at the 2013 Georgia Ag Forecast Jan. 29 in Macon, Ga., where 150 mid-state farmers and agribusiness leaders came to hear the best prognostications for the coming growing season.

Drought Wildcard Looms Over 2013 Farm Economy
Drought Wildcard Looms Over 2013 Farm Economy

And, also good, commodity prices look to remain strong in 2013. Maybe not record, but strong. Farm solvency has improved in recent years, too. The debt-asset ratio improved to 10.2% in 2012 from 10.7% in 2011. This trend is expected to continue into 2013, too.

The bad
However, that same weak U.S. dollar makes things imported into the U.S., like fuel and fertilizer and other things farmers need to grow commodities, well, more expensive to get. The USDA Economic Research Service figures national farm debt was $261 billion in 2012, up 2.7% from 2011. That upward debt trend is expected to continue in 2013.

Stronger consumer demand and confidence matched with economic health in the U.S. and Europe will play heavy in the dollar's 2013 expected performance, Lacy said. But the dollar and U.S. economy took a blow this week when the U.S. reported negative GDP growth, minus 0.1% for 2012's fourth quarter.

The Price-paid Index, which quantifies costs for production, interest, taxes and wages, has jumped 82% in the last decade. By comparison, the Producer-Price Index for finished goods rose only 40% in the last decade. Major crop-related expenses are expected to go up an average of 10% for the 2013 season.

The ugly
Though storms raged through the Midwest and South, bringing much-needed moisture, drought continues to plague the regions, particularly the Midwest. The most-recent drought model shows the Midwest all the way down to Texas in terrible drought conditions with little expected relief in the coming months.

So, what's the linchpin between $5 per bushel corn in 2013 and $7 or higher per bushel corn? You guessed it. The ugly drought.

The U.S corn carryover from 2012 going into this growing season is little to nothing. The stocks-to-use ration is 5%, which means after-use carryover from the 2012 crops is about a two or three week supply, Lacy said. Extremely scary low. Corn acreage will be up, maybe around 99 million acres in the country. Southern growers will increase acreage, too, but by how much is not clear. Maybe by 20%, some say.

"Quite honestly, as we look at these grain markets and some of these livestock markets, the truth is you really don't need an economist. You need a fortuneteller to tell you whether it is going to rain or not. Because that really is going to be the difference this year between us having $5 corn or even $8 dollar corn," Lacy said.

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.