Market Matters Blog

O Iowa, Iowa! Wherefore Art Thou, Iowa?

This iconic line from Romeo and Juliet (which I've altered, as you can see) tricks many. It sounds like it should mean: where are you Iowa? Iowa's right where it always has been: between the Mississippi and Missouri Rivers, south of Minnesota and north of Missouri, in the heart of the Corn Belt.

The true meaning of the phrase, which Juliet shouts without knowing Romeo is hiding in the bushes below her balcony, really means why. Why, Iowa, must you be Iowa?

Shakespeare's most famous play ends in tragedy: Juliet drinks a potion that makes her appear dead. Romeo thinks she's actually dead and commits suicide. Juliet awakes, sees her deceased lover and kills herself.

It's a tragic ending rooted in magical potions and misunderstandings. Are Iowa's crop troubles being misunderstood by the market? Or is the market under the spell of a magical potion, destined to wake up and see the devastation caused by its jaunt into sub $4.75 territory, and then plunge again?

A farmer from Ida County in northwest Iowa told me it's the toughest spring he's endured. About 80% of his beans were planted in mid-June, and the corn he planted before it snowed in April looked about the same as the corn he planted in late May: rough. Then it stopped raining. The cracks in the ground are deeper than last year, and he's worried about multi-year drought, 1930's style.

"Crop insurance is the only reason I can sleep at night," he said. He priced a little corn ahead of time, but only a little because he got burned by last year's short crop.

With USDA calling for a record 13.8 billion bushel corn crop and a 3.255 bb soybean crop, which would be the third largest U.S. crop ever, Iowa farmers are left scratching their heads. The markets have historically traded on Iowa planting progress, conditions and weather; but December corn closed at another new contract low of $4.47 1/4 Tuesday, down more than a dollar from early June.

"I can understand how Iowa farmers, representing the largest corn producing state, would be frustrated given market action over the past two months," said Joel Karlin, author of DTN's Fundamentally Speaking Blog. They might still have corn in the bin, and a friend of Karlin's says only 5% of the 2013 crop has been sold.

"The market is certainly aware of the plight of Iowa with large sections of the NE and NC regions of the state not even getting planted, and these are some of the highest yielding counties in the U.S.," Karlin said. Extended dryness has caused problems, and a map he looked at recently suggests southwest and south central Iowa have it the worst.

O, Iowa! Iowa! Wherefore art thou Iowa?

Iowa's expected to produce 16% of this year's corn crop, based on USDA's August estimates. It accounted for 17.4% last year and 19% in 2011. It hovered in the 17% to 19% range since 1999, with the exception of 2002 when crops in other states suffered while Iowa's excelled, accounting for 21.5% of national production.

"Over time corn acreage in the U.S. has shifted north and west into Kansas, South Dakota and North Dakota. Reasons for this include higher returns planting corn as opposed to other crops that have traditionally been grown in these states, such as wheat (winter and spring and durum), sunflowers, rapeseed and other minor crops," Karlin said. Changing weather patterns may also play a part, trimming the yield drag from shorter season varieties and eroding the economic disadvantage.

Does that mean it's time for Iowa to swear off its name, as Romeo pledges after emerging from the brush?

No, not so fast. An identity like Iowa's is hard to change, and Karlin points out that Indiana and Illinois have faced the same issue.

I was recently sent a map of prevented planting acres compiled by a brokerage firm. Its bottom line is there's been a 3.9 million corn acre loss (some of it went to soybeans, the rest prevented planting), which results in a near 600 million bushel cut to production. About 150 mb of that comes from Iowa.

USDA's expecting a 1.837 billion bushel carryout based off its production and usage figures. Even if you cut 600 mb from that, it's still an ending stocks figure above 1 bb, a significantly different scenario than the previous few crop years. Less of that corn will be from Iowa; more of it will be from Eastern Corn Belt.

Iowa farmers -- all farmers really -- hope this year doesn't end in a Romeo and Juliet tragedy. And while prices have fallen, the crops need a late frost to reach their full yield potential. Hope is still alive.

With that, I'll leave you with one more (slightly modified) gem that Shakespeare penned in the candlelight of his favorite pub: Iowa. You’d still be yourself even if you stopped being Iowa. The thing we call a rose would still be as sweet if we called it by any other name. Only time will tell if the markets feel the same.

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