As farmers bid adieu to El Nino and grimly acknowledge La Nina’s arrival, they know the Latin-named climate drivers have opposite personalities and the feminine one can be a real witch as she taunts the Corn Belt. 

La Nina is set to roll into town in mid-summer, and if anything is like her prior visits, many farmers will be calling their crop insurance agents in the next few days, just to make sure their policy is current.

Their response is akin to bolting doors, turning off the lights and telling the kids to go to the basement and keep quiet for six months.

El Nino’s visit for the past five or so months has been marked by warmer than usual temperatures and less precipitation than usual. Subsequently it has been a mild Corn Belt winter for the most part. 

After a transitional period of neutral weather conditions during the spring and early summer, La Nina’s expectations are warm and dry weather for the end of the crop growing season. Drought, if you want to call it that, interrupting ear development for corn and podfill for soybeans. 

Fortunately, adequate moisture should be available for the start of the growing season. But the end of the summer could be a roll of the dice, with the odds generally stacked against production agriculture.  Since 1960, the three worst soybean crops have occurred in summers when El Nino departed and La Nina arrived. Those were 1983, 1988 and 2003, with increasingly large departures from the trend yield for soybeans.

Likewise for corn.  Of the 10 times since 1960 that El Niño decayed similarly to 2016 projections, three of the six worst U.S. corn crops followed. While 2012 had other climatic building blocks, 1985 and 1988 were years that paralleled what we are expecting for 2016. 1985 and 1988 saw national corn yields drop 20-30 bushels under the trend yield.

So, how will farm management decisions respond to the potential for a yield challenge?  Are farmers gobbling up November soybean and December corn futures at their current low levels hoping to sell at high prices next fall? No, farmers are already naturally long against the market with their 2016 crop, and lenders certainly wouldn't financially back such speculation.

But you can bet your bottom dollar those lenders who are being asked for lines of credit to obtain crop inputs are requiring the purchase of crop insurance as a means of covering some of the financial risk, should crop yields falter from La Nina. 

Currently, the process is at the midpoint for setting a guaranteed price for 2016 corn and soybeans, with the use of futures price closes during February for the November soybean and December corn contracts.  And it is really not very pretty. The spring guarantee prices for 2015 were $4.15 for corn and $9.73 for soybeans.  Halfway through the process, the spring crop insurance guarantee for corn is about $3.87 and for soybeans about $8.85.

Neither of those crop insurance guarantees would cover input costs and cash rents. Only once in the last decade did the spring guarantee cover both for corn, and it never has for soybeans. As of Tuesday a corn crop insurance policy for 85 percent coverage on a 200 bushel (APH) average yield would only cover $658 in production costs.  And for soybeans with an 85 percent coverage policy on a 55 bushel (APH) average yield would only cover $414 in production costs per acre.  Needless to say, a farmer and the farm’s lender will have more risk than will be covered by a crop insurance policy.

But the good thing is that in 1988, only 15 percent of farms used such risk management tools. In recent years, 85 percent of them are using a revenue-based crop insurance policy. 

There is no romance in a La Nina tango.

Stu Ellis is an observer of the Central Illinois agriculture scene.


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