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
“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
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
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
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 —
“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.”