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After floodwaters ebb, food prices likely to rise

Crop shortfalls in the deluged Midwest are expected to drive up costs for corn and fuel.

June 17, 2008|Jerry Hirsch and P.J. Huffstutter | Times Staff Writers

The flood tides enveloping the Midwest will crest across the nation in the form of higher prices in just the places where households have been hit the hardest -- food and fuel.

Floodwaters have spread across the Corn Belt, preventing farmers from planting soybeans and damaging a corn crop just starting to emerge from the ground. Analysts estimate that flooded Iowa and Illinois and the other corn states might produce 15% less of the grain than last year. Some believe the shortfall will be larger.

That pushed corn prices to near $8 a bushel Monday and sparked fears of another jump in food inflation. Already, the cost of food is increasing at its fastest pace in 18 years.

"This is a pretty big train wreck developing," said Steve Meyer of Paragon Economics in Adel, Iowa.

Corn is one of the economy's essential commodities. It feeds cattle and dairy cows, it's cooked into breakfast cereal, it sweetens soda pop and it creates ethanol. The developing shortage is expected only to increase competition for corn among farmers, food companies, ethanol refiners and exporters.

Consumers can expect "to pay more at the pump or more in the food aisle, or both," said Chat Hart, an agricultural economist at Iowa State University.

For now, cattle ranchers, pork farmers, dairies and other food producers will take the largest hit, said Michael Swanson, a Wells Fargo & Co. agricultural economist.

"We have record prices for hogs and for cattle, but these prices aren't going to be high enough for the farmers to make any money because the price of corn is so high," he said.

Barring a sudden turnaround in the corn markets, shoppers should expect to see the price of meat rise as farmers reduce the size of their herds to save money on feed.

Some economists believe that will create a dip in meat prices followed by increases. Meyer, who specializes in the economics of the U.S. livestock market, expects prices to remain steady for some months, but not decline.

He said chicken prices would start to increase first, as poultry supplies tighten. That would be followed by pork and then beef.

Hog farmers in South Dakota are starting to liquidate their herds and get out of the business, said Jeremy Lehrman, executive director of the South Dakota Pork Producers Council.

The pork industry is dependent on farmers such as Doug Boland, 53, a fourth-generation farmer who lives near Williamsburg, Iowa, about 35 miles southwest of flood-ravaged Cedar Rapids.

About 100 acres of Boland's farmland runs along the English River, which has flooded twice this year and has stymied his efforts to get plants in the ground.

He spent Monday combing his property for small lots dry enough to plant soybeans. He found 12 acres in one corner and 15 in another and altogether on Monday was able to get between 35 and 40 acres planted, but he's not sure whether the plants will take hold.

"We should have corn right now, all across this land, that is knee-high. It should be rich and green," Boland said. But as he looked at the neighboring farms, all Boland could see was wet, straggly, yellowing shoots, barely inches above the ground.

"I am not sure how much yield we are going to get out of any of this," he said.

Earlier this month, the U.S. Department of Agriculture estimated demand for corn in the coming year at 12.5 billion bushels.

About 5 billion would be used for feed, 4 billion consumed by ethanol production, 2 billion sold overseas and the rest put to other food, seed and industrial uses. The nation was on schedule to produce just 11.7 billion. The shortfall would be made up by corn grown in previous years and stored.

But because of the soggy plants near Boland's farm and across the Midwest, analysts now think corn production could fall to about 11 billion bushels, draining supplies to precariously low levels.

"Everyone is going to have to cut back," Meyer said.

Some analysts believe the rapid increase in the use of corn to make ethanol has left the nation with little room to maneuver through weather-related disasters in the Midwest.

"Our ethanol policy requires perfect weather, and not surprisingly, we aren't getting it," said Michelle Perez, senior agriculture analyst with the Environmental Working Group in Washington.

Perez said that in establishing federal mandates for the use of renewable fuels, the Bush administration and Congress ignored "the impact this policy could have on food prices, relying entirely on good weather to make this roll-of-the dice decision a success."

Even before these latest rains, the acreage devoted to corn was falling.

Enticed by high prices for soy and wheat, farmers expected to plant 86 million acres this year, about 8% less than 2007, according to the USDA.

But it's doubtful that all those acres got planted.

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