Rain puts a dent in corn crop - Truth About Trade and Technology

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Wednesday, 11 June 2008 03:59

The Chicago Tribune
By Joshua Boak
Original Publish Date: June 10, 2008

Heavy rainfall across the Midwest has muddied forecasts for the corn crop, with analysts now predicting a poor harvest and prices that could shoot to once unthinkable levels.

Freshly planted corn and soybeans literally drowned last week, as rain drenched fields in Illinois, Indiana, Iowa and elsewhere.

Farmers can respond to the downpour by replanting soybeans late in the season or abandoning their fields, choices that would limit how much corn is available for ethanol, overseas buyers and livestock feed.

"We could easily see corn go to $7, $8 or $9 because we're going to be losing yield," said Phil Flynn, an analyst for Alaron Trading Corp. in Chicago. "And it could be higher if the weather doesn't improve."

September futures for corn closed at $6.71 a bushel Monday at the Chicago Board of Trade. Only a few years ago, corn regularly traded for less than $2.50 a bushel.

The harsh weather also undermines guidance released Monday by the Agriculture Department, which showed progress in corn emerging from the ground and a delay in farmers planting soybeans when compared with last year.

"The work the USDA did for this report is a week to 10 days old," said Roy Huckabay, executive vice president of the Linn Group, a Chicago commodities brokerage.

"The situation has changed dramatically since that work was done."

Huckabay said the rainfall might cut 2 million acres from estimates that 86 million acres of corn would be planted this year. That translates into a loss of more than 300 million bushels of corn, he said, at a time when supplies are tight and demand surging.

Prior to the rainstorms, the Agriculture Department projected a yield of 12.13 billion bushels of corn, almost 1 billion less than the previous year. About 30 percent of corn supplies will go to ethanol and 17 percent to exports.

Some livestock producers who rely on corn feed likely will introduce soft wheat into their animal's diets, since that crop should enjoy a stronger harvest season, Huckabay said.

Corn growers with flooded fields can adapt once the soil dries by planting soybeans as a substitute for the corn or accepting crop insurance payments for their losses, said John Hawkins, a spokesman for the Illinois Farm Bureau.

While the rainfall hurts both yields and total acreage, the full extent of the damage is unknown, as satellites have yet to obtain a clear view of the farmland.

"The problem with extreme weather is that it brings a lot of clouds," said Nick Kouchoukos, director of information services for the satellite imagery firm Lanworth Inc. "And we're not going to see anything until the clouds part."

The nasty weather leaves those dependent on corn far more vulnerable to price swings, particularly because available reserves have fallen amid American ethanol mandates and burgeoning foreign economies importing more corn.

Sens. Dianne Feinstein (D-Calif.) and Judd Gregg (R-N.H.) proposed reducing the tariffs on foreign ethanol, a bill endorsed Monday by the Consumer Federation of America as a way of lessening the demand for corn.

Any long-term solution depends on technological advancements in agriculture worldwide that would improve yields, although that opportunity provides little solace to those coping with higher prices, said David Orden, a senior research fellow at the International Food Policy Research Institute.

"There's a lot of uncertainty," Orden said. "There's a lot of money being gambled on which way prices are going to go."