Rich Nelson, chief strategist at Allendale Inc., speaks to an audience at the company’s Ag Leaders Outlook Conference in Crystal Lake, Ill. Nelson suggested that waiting for soil moisture levels to be fixed may not be the best marketing approach for farmers. He also alluded to the fact, backed up by historic weather data, that incoming soil moisture is not the single determinant of whether crops will achieve trend yields.
Rich Nelson, chief strategist at Allendale Inc., speaks to an audience at the company’s Ag Leaders Outlook Conference in Crystal Lake, Ill. Nelson suggested that waiting for soil moisture levels to be fixed may not be the best marketing approach for farmers. He also alluded to the fact, backed up by historic weather data, that incoming soil moisture is not the single determinant of whether crops will achieve trend yields.

CRYSTAL LAKE, Ill. — The boat that Rich Nelson was rocking didn’t have much water under it. But the chief strategist for Allendale Inc. rocked it just the same.

“All of us, almost all of us, have a big fallacy today — all of us, as far as producers, certain traders, newswire reporters, the grain industry, in general. The fallacy is: We need to correct this soil moisture in order to grow corn,” he said. “Soil moisture needs to be corrected to grow corn. That’s what everybody in this industry is betting on right now.”

Nelson delivered the nugget of unconventional wisdom at Allendale’s Ag Leaders Outlook Conference, an annual event that the brokerage, market strategies and analysis firm sponsors. He noted at the start of his presentation that the “special speech” was going to be dedicated almost entirely to yield.

“Acreage is not even the issue this year. This is a yield issue for this year,” he said.

Nelson, along with other Allendale personnel, riffed off of previous speakers, including Drew Lerner of World Weather Inc., who presented a weather outlook, and Nelson’s coworker, Steve Georgy, who predicted that corn acreage numbers may be up only modestly this year, predicting an increase of some 500,000 acres.

Nelson said he expects the U.S. Department of Agriculture to come out with another high expected corn trend yield number going into the spring crop reports.

“What USDA has been using, last year they started at 1990 and looked at the trending yields, but they threw out 2011 because we had that yield dip last year. We had two minor yield dips, 2010 and 2011. USDA said if we grow normal conditions, they said 164 trend. They threw out the minor year 2011,” Nelson said.

He said that he expects the agriculture agency to follow the same path for 2013.

“Here’s the same thinking for what they might do this year. All indications from my discussions with them back in October are that they will do something similar again this year, a very aggressive, very big starting corn yield. Let’s take out 2012, that crazy big anomaly in the numbers, so USDA likely 163.5,” he said.

Nelson then presented Allendale’s estimate of the 2013 trend yield for corn — 157.1 bushels per acre.

“Our starting point is very conservative. I’m not going to throw out some crazy bearish talk on crazy-seeming numbers,” he said. “I’m going to have a number that is a whole 6 bushels less than USDA’s starting point. Especially concerning soil moisture, I think that’s very, very realistic.”

Nelson made his point about the incoming soil moisture using data — including historic Palmer Hydrological Drought Index maps from minor and major weather impact years, including 1970-1971, 1974-1975, 1980-1981, 1983-1984 and 1988-1989. Those included wetter-than-normal years, as well as drought years.

Lerner mentioned, in his presentation, that the Palmer hydrologic drought maps may not be the best indicator of on-farm moisture, since the Palmer Hydrological Drought Index measures groundwater levels, including reservoir levels, rivers and streams and lakes and ponds.

Nelson pointed to two minor weather years that impacted trend yield — 1970 and 1980.

“In 1970, we had a 14-percent drop versus trend, and in 1980, we had about a 12-percent drop in yield versus trend,” said Nelson, backdropped by the September 1970 Palmer Hydrological Drought Index map showing bright green over a large portion of Illinois, indicating above-normal moisture.

“What happened to yields after that? In 1971, we didn’t meet the previous year’s trend yield — we beat the previous year’s trend yield,” said Nelson, adding that the map a year later, July 1971, shows the moisture problem fixed.

The next minor problem year was 1980, where a Palmer hydrologic drought map showed a large portion of the northern Corn Belt and Great Plains in moderate to severe drought, with the worst point being in July.

“By July 1981, the problem wasn’t fixed. In the northwest Corn Belt, they remained in drought in a lot of areas. Missouri and western Illinois where it was moisture deficit, it went to moisture excess,” Nelson said. “In 1981, we didn’t just recover yields. We didn’t just meet trend yield. We beat trend yield.”

Nelson then established his grip on the hot seat as he further illustrated his point with years that many in the multi-state audience could recall – 1974-1975, 1983-1984 and 1988-1989.

Backed by slides showing the vividly-hued Palmer Hydrologic Drought Index maps of the month and year he was using, Nelson noted that September 1974 was a month that saw extreme moisture across the central Corn Belt that by July 1975 was mostly fixed.

Nelson used that time period to illustrate his point that even with adequate incoming soil moisture, trend yields still can be down due to other factors.

In 1975, trend was down 8 percent, 86.4 was the actual yield and trend in that year was 93.9, using a straight 20-year trend line

“In 1975, conditions improved and the entire moisture problem was fixed, but we dropped from trend,” Nelson said.

July 1983 brought anomalies.

“It was one of the worst heat years we’ve ever had — extreme heat, but it was actually excess moisture, extreme excess moisture, so 1983, significant problems. By July 1984, they remained, but were partially fixed,” said Nelson, noting that producers beat trend yield in 1984.

Moisture problems remained through the summer, yield ended that year at 106.7 and trend was 104.9, so it beat trend by 2 percent.

The last year that Nelson chronicled was the worst drought year in recent memory before 2012 — 1988.

“The most significant and ugly drought we’ve seen from a moisture perspective in recent times,” he said of 1988.

He noted that the July 1988 map shows an area engulfed in catastrophic drought similar to the area most affected by the 2012 drought.

“You can circle almost the entire Corn Belt in 1988 with significant moisture problems,” he said.

The next map was the July 1989 map that showed problems remaining, but partially fixed. “The problem remained in 1989, partially fixed, 2 percent over trend in 1989,” Nelson said. “If you’re going to have one main message — incoming soil moisture is not a main determinant of yields. That’s very mean, ugly stuff. I’m going to create a lot of enemies right now, but this is just looking at the facts.”

He said that the rainfall and temperature of each growing season plays a significant role.

“Each year’s temperature and moisture is the main determinant of yields. I’m not going to say we’re going to hit trend yield this year. All I’m pointing out is that trend is actually still a very realistic potential — it’s still in the ballpark,” he said.

Nelson also urged producers not to wait for maps to indicate long-term soil moisture has been fixed.

“Of our major problem years, we couldn’t find a relationship between leading soil moisture and that year’s yields,” he said. “I can guarantee you these maps will still be ugly, March, April, May, June, July and even by August. What’s every newswire reporter going to talk about? It’s so dry, so dry, so dry, so dry.”

But Nelson said he hoped the concept he introduced would get producers to look beyond the headlines — and even the maps themselves.

“Soil moisture is not the key driver. Yes, it is a partial driver, but it is certainly not in any way the key driver of yields. The big message every single person in this room is going to pay their conference money five times over to hear — waiting for long-term soil moisture to get fixed is not the best approach. Don’t even play that game this year,” he said.

Nelson also went after another venerable institution — planted acres.

“The acreage map, this other sacred cow. Does it matter if we plant 97 million acres, 99, 100? Not when you’re talking yield numbers like this,” he said. “Yield is the issue for this year. I don’t care about acres.”