AGRICULTURE:

Heat wave threatens U.S. corn crop

The record-breaking heat has begun to subside, but it will likely be another two months before its effects on U.S. corn production can be fully discerned. Early data suggest, though, that the damage could be serious and cause corn prices to spike significantly.

According to the latest U.S. Drought Monitor report, more than two-thirds of the contiguous United States is now under drought conditions, the highest level since record-keeping began in January 2000. Brad Rippey, an agricultural meteorologist at the Department of Agriculture, said that a band of the country stretching from the central Great Plains and into the lower Midwest has been the hardest hit by the heat wave and has experienced a significant expansion of drought conditions.

Many of the nation's largest corn-producing states are within that band.

Corn crops are currently in their crucial pollination phase, when tassels begin to emerge from the top of plants and silk begins to form. Along those tassels cling the tiny pollen grains that fall and potentially fertilize the corn's female flowers, or ovules, to become kernels of corn. The searing temperatures of the past two weeks have withered corn leaves -- an ominous sign.

In its weekly crop conditions report, USDA stated that, among 18 corn-producing states, 18 percent of total planted acreage is in poor condition, up from 15 percent the week before. Conditions are very poor over 12 percent of acreage in those states, compared to 7 percent last week.

The nation's biggest corn-producing states, Illinois and Iowa, have been hit hard. Nearly half of the planted corn acreage in Illinois is in poor or very poor condition. Eighteen percent of Iowa's crop falls in those categories.

"It's too early to determine the final impacts of the heat wave," Rippey said. "But what we do know is, for corn producers, it couldn't have hit at a worst time."

Cooler weather coming, but little rain

Rippey says that USDA agents will conduct field assessments later in the summer, when corn is more fully developed and individual ears can be examined to see the extent to which pollination has occurred. He anticipates USDA releasing its findings on Aug. 11.

Until then, the outlook remains bleak.

"In the coming week, except for the northern High Plains, we expect much cooler weather in all areas east of the Rockies, but not much moister in the drought-affected areas," Rippey said. "Looking ahead, the heat may return, and perhaps this is just going to be a one-week reprieve."

Some biofuel producers have halted production due to a recent spike in corn prices. Valero Energy Corp. halted production at plants in Nebraska and Indiana, dispatching employees on maintenance projects.

Matt Hartwig of the Renewable Fuels Association sought to tamp down rumors that U.S. EPA would issue a waiver to the national renewable fuel standard (RFS) due to concerns over prices, reducing by 20 percent the nation's biofuels target.

"The bottom line is the EPA has no justification for altering the overall RFS in any way, nor does it have the authority to impulsively reduce the program's targets," Hartwig said. "Ultimately, the market will sort out any imbalances in supply and demand. Much like the petroleum industry, ethanol producers will read market signals and make decisions accordingly."

Climate is 'largest influence' in ethanol price

Hartwig said the current stock of ethanol is approximately 1 billion gallons, large by historic standards and enough "to provide sufficient supply support for the rest of the summer." He added, however, that last week's production levels were the lowest of the year, declining roughly 10 percent below those in January. Nevertheless, he said the industry is on track to "easily satisfy" this year's production target of 13.2 billion gallons of ethanol produced and is even on track to export 900 million gallons this year.

Noah Diffenbaugh, an assistant professor in the school of sciences at the Woods Institute for the Environment at Stanford University, predicts that this combination of extreme weather and biofuel production mandates presents the most significant threat to the stability of corn prices. In an April article published in Nature Climate Change, Diffenbaugh, along with two scientists from Purdue University, suggests that these two factors may undermine market elasticity even more than that of oil prices, government trade policies or land costs.

The group projected changes to temperature and precipitation using an ensemble of climate models and simulated how those changes would affect crop yields. Then they modeled how commodity markets would respond to variations in crop yields and biofuel mandates under scenarios where oil prices were at $169 per barrel and $53 per barrel.

"What was surprising to us was that climate change was the largest influence," Diffenbaugh said. "Our hypothesis was that it would be energy price or government policy. We found that biofuels mandates are the second largest effect and combined with climate change exacerbates corn price volatility by 50 percent by requiring supply to go into fuels."

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