Why Drought Doesn't Necessarily Mean Ruin for U.S. Farmers

U.S. farmers are facing the toughest conditions in years, but they have a few factors on their side.

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The drought currently plaguing the Midwest is one for the books. According to the NOAA, it has the widest reach of any drought since 1956, affecting 55 percent of the U.S. America's farmers. Many experts are comparing the hot and dry weather to the devastating drought of 1988, considered among America's most costly natural disasters ever.

Still, there are a few factors working in U.S. farmers' favor, even with yields for major crops like corn and soybeans looking dimmer by the day. Here is how many U.S. farmers will stay afloat through a potentially record-setting drought.

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Being Insured

The federal government subsidizes crop insurance premiums for major crops—83 percent of corn plantings are insured, along with 84 percent of soybeans and 86 percent of wheat, according to a 2010 Congressional Research Service report—and covers an average of 60 percent of the premiums. Depending on the level of coverage that they purchase, many farmers can receive enough from their insurance to farm another year, though they find themselves in dire straits right now.

Of course, the insurance doesn't help everyone: crop insurance is no relief for livestock farmers, who may find that their grazing land has withered, or that the cost of feed has climbed.

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High prices

It's Economics 101: declining yields correspond to rising prices. Yields are expected to be substantially lower than previously estimated. Last week, the USDA projected a corn crop of 146 bushels an acre, 20 bushels lower than its June estimate. Meanwhile, corn prices have soared above $7.70 per bushel, from their levels in the $5 to $5.50 range in much of May and early June.

But the math could work out to farmers' advantage.

"The gross revenue may actually be more in the drought condition than it would have been in conditions we were expecting," says Mike Duffy, professor of economics at Iowa State University.

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The key is simply for a farmer's yield not to drop far enough to negate the high prices.

"If the price goes up 15 or 20 percent, but you've lost 60 percent of your crop, you've lost out," says Christopher Merrett, director of the Illinois Institute for Rural Affairs at Western Illinois University. "The most fortuitous situation would be for you to be somewhere where the crop has not sustained the same level of damage."

Living in the Right Place

A drought in 55 percent of the country affects crop prices everywhere, boosting revenues for some lucky farmers.

"There are some areas escaping the wrath," says Joel Widenor, agricultural meteorologist at the Commodity Weather Group, pointing to North Dakota and northern Minnesota, which have not faced the harsh conditions that farmers in states like Illinois, Indiana, Missouri are seeing. Higher prices on northern plains crops like corn, soybeans, and spring wheat could buoy those farmers through the drought.

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Early Planting

An unseasonably warm winter meant that farmers could get their crops into the fields remarkably early, making for a stronger outlook.

"We had a really weird planting season, where it was very mild and wet in March and early April, and people got planted then, and that corn looks a lot better than the later-planted corn," says Duffy.

Luck

Even for farmers living in the driest places, the effects of drought will be maddeningly uneven, meaning that neighbors might find themselves with widely varying yields.

"Some people are getting the rain and some aren't," says Duffy. "We're going to see some winners and losers in this, and a lot of it's just going to be luck."

He points out that while one farm might get no rain, another 10 miles away could get an inch—a godsend in a desperately dry year. Having a field that lands directly under a raincloud is simply a matter of good fortune—a commodity that, like rain, seems to be in short supply this year.