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US floods hits food prices { June 17 2008 } Original Source Link: (May no longer be active)
http://www.ft.com/cms/s/0/2a0e8188-3c98-11dd-b958-0000779fd2ac.html?nclick_check=1http://www.ft.com/cms/s/0/2a0e8188-3c98-11dd-b958-0000779fd2ac.html?nclick_check=1
US floods hit food prices
By Hal Weitzman in Pike County, Illinois, and Javier Blas in London
Published: June 17 2008 22:00 | Last updated: June 17 2008 22:00
Consumers were warned to expect even sharper increases in global food prices after US officials said that some of the country’s best farmland was facing its worst flooding for 15 years.
Agriculture officials and traders said the damage could push up worldwide corn and soyabean prices, which have spiralled in recent days as floods have swamped crops in parts of Iowa, the US’s biggest corn-producing state.
The warning comes at a time when high food prices are already sparking protests across the developing world.
Corn futures in Chicago this week rose to record highs of more than $8 a bushel on fears that up to 5m acres of the crop could be lost, while soyabean prices hit a record of $15.93 a bushel.
Tom Jennings, acting director of the Illinois Department of Agriculture, said: “The price of corn and the price of beans could rise more. If we lose a lot of corn the prices will continue to go up.”
The increase in the cost of corn and soyabeans – the two main feed crops for farm animals such as cows and chickens – increased the price of live cattle yesterday for the second day in a row, to the highest level in 22 years.
Mr Jennings said that the impact of the heavy rains was “dramatic”.
“According to the emergency reports I’m getting, we’re above what happened in 1993 but we’ll have to see how that tapers off as [the rain water] comes down the river,” he told the Financial Times.
The Mississippi River broke through its levee system in 1993, destroying about 1m acres of crops and causing $20bn of damage.
Lewis Hagedorn, of JPMorgan in Chicago, said that the losses were significant.
“The risk of still-higher agricultural prices remains decisively distributed to the upside amid the fundamental need to ration demand in light of smaller supply,” he said.
Greg Wagner, at Ag Resource in Chicago, added that corn prices could take a pause to assess the weather impact. However, he warned: “Additional price gains are likely as the market is prone to overshoot.”
After weeks of heavy rains and low temperatures, the US Department of Agriculture said that only 57 per cent of the country’s corn crop is in good or excellent condition, considerably less than the 70 per cent registered this time last year.
Local farmers in Illinois said that the bad weather had delayed planting by up to five weeks, which would result in a much reduced crop of corn and soyabeans. Some farmers expected their corn production to be down by as much as 50 per cent from last year’s level.
Agriculture traders described the problem graphically, saying that corn plants in Iowa or Illinois should now be reaching almost waist height, but due to the impact of the heavy rains and low temperatures were below knee-height.
They added that expensive nitrogen fertiliser – critical for the plants’ development – has now been washed out from the fields by the rains. For that reason, some farmers are likely to leave their land fallow and, instead, cash in their crop insurance policies, further reducing supply.
Copyright The Financial Times Limited 2008
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