February 25, 2024

Chicken Little, the infamous character from a children’s fable, had a trust issue with his barnyard friends after crying “The sky is falling” one too many times. This story serves as a metaphor for the current situation in the grain trading market as the 2024 crop season approaches. For the past several growing seasons, ag climatologists have been predicting drought, but the actual crop production has not been impacted significantly.

Despite drought warnings on the U.S. Drought Monitor, the USDA’s production data for corn and soybeans shows little impact from drought, with average bushel-per-acre yields remaining steady over the past few years. This challenges grain traders’ sensitivity to drought predictions.

The book “Back to the Futures” by Scott Irwin and Doug Peterson provides a classic market example of how attempting to outguess the market’s reaction to weather can backfire, as outlined by an experience of a wet planting season leading to an unexpected crop projection in 1981. Irwin warns about the danger of relying on perception rather than reality when making market decisions, as seen in his experience.

Current concerns regarding drought and soil moisture levels are raised by Dennis Todey, the director of the Midwest Climate Hub in Ames, Iowa. He emphasizes the importance of good soil moisture recharge going into the growing season and the potential impact of well-timed rainfall on crop production.

Like Chicken Little being hit by an acorn instead of the sky falling, the potential impact on the market will only be significant if severe drought affects large areas, not just pockets. It remains uncertain whether or not the talk of drought will actually become a market reality.

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