Some Farmers 'Will Make More Money' in Drought
By: There's no question there will be less corn than expected, and that has driven grain prices to record levels.
There is some question as to how much corn farmers will suffer.
The U.S. Department of Agriculture said despite the drought, it predicts net farm income will rise 3.7 percent this year to over $122 billion, as high grain prices offset loss of production. (Read More: Massive US Drought Leads to Worst Fears for Corn Crop.)
"You know, some of these small ones can fool you," said Carol Miller, pointing to an ear of corn not nearly as large as she'd like it. "You start counting the kernels and the length, and there might be more than you think."
Miller farms a thousand acres of corn with her husband, Randy, north of Des Moines. They'll begin harvesting perhaps as soon as the end of this week. That's earlier than usual, but the corn has "dented" (the kernels pucker), showing it's starting to dry and is ready to pick.
It's fast becoming judgment day across the corn belt, as farmers like Miller pick the crop and discover just how big the yield is, or isn't. Most grain and oil seed farmers have taxpayer subsidized crop insurance which will cover, on average, 70-80 percent of their loss of "average production." (Read More: Drought Aid for Farmers Runs Dry in Washington.)
It is also becoming apparent that most farmers will still have some corn they can sell at top prices, if they haven't pre-contracted too much of it back when corn was $5 a bushel instead of $8.
"In fact, some farmers will make more money this year having crop insurance than they would have if there was a normal yield because we planted so many corn acres," Rabobank's Sterling Liddell said. "Livestock producers, on the other hand — this is potentially explosive for them." (Read More: Breakfast in America: The Real Cost of Corn.)
That's because livestock producers don't have the same kind of insurance.
Perhaps it's no surprise, then, that 225,000 people are expected to attend the Farm Progress Show in Boone, Iowa, this week, the largest outdoor farm equipment show in the country.
"We really don't see any impact on our business," said Jim Walker, senior vice president of Case IH about equipment sales in the drought.
Rival AGCO is projecting a record year, though its North America General Manager, Bob Crain, said, "There's a lot of wait and see right now."
Crain expects some sales of combines and tractors that might normally happen in the fall will be delayed until November or December, as farmers see how much they are reimbursed from crop insurance. (Read More: Crop Insurance Set to Expand Despite Growing Fraud Worries.)
The biggest losers in this drought may be the insurers, a list which includes the federal government, as well as companies like Endurance Specialty Holdings, American Financial Group and Ace Limited. All three have underperformed the broader market year to date.
As for farmer Carol Miller's purchasing decisions, "We're going to hold back," she said. "We want to know what we have and what we can afford."
Amazingly, after all the heat and lack of rain, this year may not be so bad.
"We feared it wasn't going to be a good crop at all," she said. "It's improved. The hybrid vigor and the genetics, I think, made the crop what it is, because if we had the same genetics 20 years ago, you probably wouldn't have had a crop."
—By CNBC's Jane Wells
@janewells
