Riding the Drought Wave: How Climate Variability Shapes Winners and Losers in U.S. Agriculture

As a decade-long, most widespread drought ravages the U.S. farm sector, a stark divide is emerging between winners and losers. Over half of U.S. corn and soybean acreage is grappling with drought conditions, prompting farmers to mull over whether insurance payments will suffice to cover the cost of the crops they have sown this year.

As of June 27, 65% of the Midwest was experiencing moderate drought or worse, the largest area in a decade, according to the U.S. Drought Monitor. The U.S. Department of Agriculture has reported that 70% of the country’s corn production area and 63% of soybeans are impacted by the drought. These figures are significantly higher than the five-year average for U.S. corn in drought before this year, which stood at 18%, and 15% for soybeans.

Farmers on the Frontlines of the Drought

In the heart of the Midwest, in Coal Valley, Ill., Megan Dwyer’s family typifies the plight of many U.S. farmers. The family farms 700 acres, raising corn, soybeans, and beef cattle. Their annual fortunes now hinge on the whims of the weather.

“With the drought, we might not even have a crop to sell this year,” warns Dwyer, a fourth-generation farmer, adding that they’re already losing yield. Similarly, about a third of U.S. winter wheat is expected to be abandoned due to poor quality, a rate unseen since 1917.

The Livestock and Meat Industry’s Struggle

On the other side of the agricultural equation, livestock producers and meat companies brace themselves for a surge in feed bills, driven by a smaller-than-expected harvest. Higher grain costs translate into more expensive feed for cattle, hogs, and chickens.

Many hog farmers are barely making a profit, and cattle ranchers have been culling their herds over the past year due to soaring feed bills. Dairy producers face a difficult choice: to downsize their operations or absorb the higher feed costs until market conditions improve. Ethanol producers, too, are feeling the pinch, grappling with the decision of whether to keep their plants running at lower profit margins or to cut production.

Winners Amid the Woes: Drought Resistant Areas and Global Crop Shippers

Ironically, the drought is also creating winners. Farmers whose fields remain green are set to pad their incomes. These lucky farmers, located outside of drought territory, are poised for another year of robust income even as corn prices were on the decline, according to Scott Irwin, an agricultural economist at the University of Illinois Urbana-Champaign.

Moreover, the high prices for crops are improving prospects for global crop shippers such as Cargill, Archer Daniels Midland (ADM), and Bunge. The concerns over supplies are prompting grain buyers to make advance purchases, potentially driving profits for these companies. Indeed, ADM is estimated to earn more than $3.7 billion in profit in its 2023 fiscal year, while Bunge is expected to make $1.8 billion.

The Impact on Farm Suppliers and Pest Control

The drought’s impact also extends to companies such as Corteva, Bayer, Deere, and CNH Industrial that supply farmers with seeds, pesticides, and machinery. While higher crop prices can mean more money for farmers to invest in their next growing season, if the drought decimates too much U.S. farmland and farm income, these suppliers could suffer as growers transition to cheaper generic seed purchases or delay equipment purchases.

Farmers are also contending with new pests and diseases that drought conditions bring, necessitating additional farm chemical purchases. Joe Sinclair, president of the farm retailer Quality Ag Services in Iowa, anticipates a surge in insecticide sales this year as the dry weather ushers in pests like the two-spotted spider mites into farmers’ fields.

The Insurance Lifeline and the High Cost of Farming

For farmers grappling with drought-withered fields, crop insurance serves as a critical lifeline, helping growers come close to break-even and staving off bankruptcy, according to Matt Bennett, an Illinois farmer and co-founder of brokerage and consulting firm AgMarket. Net. However, despite this safety net, farmers will still struggle to cover costs for fertilizer, fuel, seeds, and other expenses.

“This was the most expensive crop ever put into the ground by a U.S. producer,” Bennett pointed out, underscoring the financial toll the drought has taken on farmers.

The Road Ahead: Uncertainty and Adaptation

The future impact of this weather on farmers’ harvests this fall hangs in the balance. According to analysts and farmers, the next few weeks could be pivotal. In the face of such uncertainty, some companies are taking proactive steps. Corteva, for instance, is developing more drought-tolerant corn, acknowledging that its success is intertwined with farmers’ productivity.

Despite the hardship, the agriculture sector remains resilient. Though the drought has cast a shadow over U.S. agriculture, the sector continues to adapt. Whether through developing drought-resistant crops, making strategic decisions to weather the storm, or leveraging the situation to their advantage, both winners and losers in this scenario exemplify the enduring adaptability and tenacity of the American farmer.

The tale of this drought serves as a stark reminder of the complex interdependencies in our global food system and the inescapable reality of climate change. The agricultural sector, more than any other, is at the frontline of experiencing and combating these changes. This drought, and the response to it, will undoubtedly shape the future of farming in the U.S. and beyond.

In conclusion, the drought has created a divide in U.S. agriculture, creating winners and losers. As the sector navigates this challenge, the importance of developing resilient and sustainable agricultural practices becomes ever more apparent. These developments will shape the sector’s future, highlighting the need for innovation and adaptability in the face of increasing climate volatility.