With corn fields under water and wheat withering in Western heat, grain prices could soon soar, boosting already high worldwide food costs
When the overflowing Mississippi breached Arkansas's levees and flooded Michael Oxner's farm in May, the waters didn't just wipe out his hopes of planting 1,400 acres of rice. It destroyed last year's crop, too. Water inundated the bins that held the rice he'd harvested in 2010, ruining 25,000 bushels and leaving a fermented smell that turned his remaining stores into pet food.
Oxner lost $375,000 in 2010 rice alone. His rice land, along with 300 acres planted with corn, won't be usable this season. Since it's too late to plant more corn, the 2,000 acres he has left will go into soybeans, which grow faster than other crops but fetch less on the market. Even with soybeans, Oxner is cutting it close: Soybeans usually go into the fields in May. This year's planting started on June 4. "I won't know how bad it will be until fall," he says.
Oxner's ordeal is being repeated all across Arkansas, the U.S.'s prime rice-growing state, where 600,000 acres remain under water one month after flooding began. Nationwide, a spring of weather extremes means that summer has to be almost perfect if the U.S. is to meet global demand for its grain. More bad weather could push corn, the U.S.'s most valuable grain in monetary terms, to $9 a bushel, says Morgan Stanley (MS) commodities research chief Hussein Allidina. That would beat the record set in 2008 of almost $8 a bushel.
Floods have damaged up to 6.8 million acres across the South and Midwest, according to the U.S. Army Corps of Engineers, an area equal to the size of Massachusetts. Farmland in other areas is parched, with droughts withering wheat and cotton in the southern plains. Much of Texas, western Oklahoma, southern Kansas, and eastern Colorado have received less than half the normal amount of rainfall in the past 60 days, according to the National Weather Service. About 44 percent of winter wheat fields—which are planted in fall and harvested in June—were in poor condition or worse as of June 5. Ohio's corn crop as of that day was 58 percent planted, the least for the week since 1989. North Dakota's spring wheat crop was 69 percent planted, the slowest pace since 1981.
The price of corn on the Chicago Board of Trade has more than doubled in the past 12 months because of record purchases by ethanol producers and rising demand from livestock farmers. Only 87.2 million acres may be planted with corn this summer, rather than the 92.2 million the U.S. Agriculture Dept. forecast before the flooding, according to the Linn Group, an agricultural researcher in Chicago.
A 5.4 percent drop may not seem like much. With supplies short, though, "we just can't afford to have weather issues, and we've already had quite a few," says Dave Smoldt, a vice-president in West Des Moines for INTL FCStone (INTL), a New York-based commodity trading and advisory firm.
U.S. farmers are feverishly working to salvage what land they can before it becomes impossible to plant early enough to ensure a fall harvest. "As soon as that ground comes out of water, they're getting to it as soon as equipment can get on it," says Lee Maddox, spokesman for Tennessee's Farm Bureau Federation. In general, if planting hasn't been done by late June, there's no fall crop.
Many farmers are still waiting to plant. Oxner's land was submerged for three weeks in May, and it's still more than half-covered. "We're just trying to get started," he says. "Every day you can't, that's less you're going to grow." The near-perfect summer he will need for a good harvest seems a long way off.
The bottom line: Corn could reach $9 a bushel this summer if farmers can't plant their still-soaked acres in time. Wheat prices will surge, too.