Derecho Calculus

Derecho Calculus

Kevin McNew

Aug 24, 2020

This month’s derecho wind storm saw widespread damage in its 700-mile wake from South Dakota to Ohio. Last week, the impact of the storm’s wrath on Iowa drew the most attention. The Iowa Department of Agriculture estimated more than 57 million bushels of permanently licensed grain storage was seriously damaged or destroyed. Also, the USDA Risk Management Agency reported 57 counties in Iowa were in the path of the derecho. There are approximately 8.2 million acres of corn and 5.6 million acres of soybeans in those counties that may have been impacted by the storm.

Here’s FBN’s take on the impact of the storm as it relates to crop markets:

1. Locally severe, globally small crop losses

FBN polled farmers along the storm track and found a clear strike area of damage through central and eastern Iowa. Based on the poll, it looks like about 15 percent of Iowa corn acres were laid down from the storm, which was also validated by satellite imagery data. The real question will be how much yield loss is expected from these acres.

See FBN Chief Economist Kevin McNew discuss the impact of the derecho wind storm in this Successful Farming interview.

We think a reasonable first estimate is about a 20 percent yield loss, which would translate into a 100 MBU loss in corn production. As an extreme, with a 100 percent loss in yield (complete wipeout), this would mean a 500 MBU lost production. On an overall crop of 15.2 billion bushels, a 100 MBU loss does little to change the balance sheet calculus. But a 500 MBU loss could be enough to give prices about a 20-cent lift, which was where the market traded early this week before heading lower.  

2. Lost bin space

Another consequence of the storm was the severe destruction of bin storage. With harvest less than 45 days away, the lost bin space could spell problems for farmers and elevators trying to manage deliveries. An FBN poll of farmers found some farmers with lost bins as a result of the storm, but it was not a sizable enough event to likely impact storage space. Between farmers and commercial elevators, there was likely 100 to 200 MBU of lost capacity, but Iowa has a massive 3 billion bushel storage capacity. Some localized impacts could lead to basis weakness, but so far there has been little movement in Iowa fall basis which suggests there is not a serious problem.

FBN's take on what it means for the farmer

For those farmers facing the brunt of the storm, the lost production and bin space is a devastating economic event. But the wide-scale impact is likely not sizable enough to appreciably impact market pricing. However, given the time of the storm around USDA’s record yield reports in the August report, the ambiguity created will likely keep prices supported and out of the $3.20 area for corn. 

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Kevin McNew

Aug 24, 2020