The 2012 drought could be taking a greater toll on Corn Belt agriculture than just withered corn and soybean fields, burned up pasture, and non-productive hay fields. Depending on one’s circumstances, the expected diminished yields will result in a severe financial impact. Some farmers may have adequate crop insurance, some may have inadequate crop insurance, and some may not have crop insurance at all. If early hedges or forward contracts had been made, revenue erosion could be going further downhill, and that all leads to another very significant problem.
In the past few days, two prominent ag economists have addressed the issue of farm revenue in the wake of the drought. Chris Hurt at Purdue said, “Farmers face a double whammy if the drought persists, Hurt said. On one hand, they could fail to produce enough crops to meet their contractual obligations. On the other, they could lose additional revenue if prices rise above their locked-in rate.” A few days later University of Illinois ag economist Gary Schnitkey said, “Farms that do not have crop insurance at high coverage levels are more at risk for low incomes. However, price increases may offset some of potential decreases in yields. This offset assumes that not much of the 2012 crop has been already priced at what could turn out to be lower prices than during the fall of 2012. As a result, farms that did not purchase crop insurance and have hedged a great deal of the 2012 crop are particularly at risk for lower incomes in 2012.”
As farmers headed into 2012, they were greeted with a USDA yield projection of 166 bushels per acre on corn, an income projection slightly lower than the 2011 record, and a weather forecast for La Nina to be replaced by El Nino. High spring prices were hedged because everyone thought they could see high yields that would drive prices lower throughout the growing season, subsequently, many farmers planned for a good year without any weather challenges. Then the summer of 2012 happened.
According to Hurt and Schnitkey, you could be in a severe financial pinch. Your neighbor might be in a severe financial pinch, and many of your friends may be in that situation, although you may not be. Depending on crop insurance choices and marketing plans, every farm will be different, and will range from a potential record income to a potential record loss. And if the latter farmers have some high- priced land to make a payment on or high cash rents to pay, 2012 could be a financial disaster along with a crop disaster. When one leads to another, family members and close friends need to step in to ensure there is not a family disaster if there are signs of depression and suicidal behavior.