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Economy, too, may depend on a dry spell

June 22, 2008|Richard Fausset, P.J. Huffstutter and Stephen Braun | Times Staff Writers

ELSBERRY, MO — . -- Frayed optimism is the best that flood-weary Midwest residents can cling to after a harrowing month of battering rainstorms and swollen rivers that overtopped sodden levees in Iowa and then in Illinois and Missouri.

The signs of economic fallout seem evident from the stark televised images: thousands of acres of fields submerged, towns isolated by muddy moats, barges and trains stalled, families left homeless.

But the contours of the flood's dislocation are still uncertain, economists and agriculture experts say, and might well be mitigated if the region is spared more high water in the critical coming weeks. A month of dry, balmy weather could spell the difference between a limited disaster and the kind of full-scale crisis that gripped the upper Mississippi River basin for months after the historic floods of 1993.

"The economy's a lot more flexible than we give it credit for," said Richard Mattoon, a senior economist with the Federal Reserve Bank in Chicago. "The tough question is how much the flood will change the picture for the Midwest and the national economy -- or will it only reinforce trends that were already going on?"

How deep the misery goes, how long it lasts and how far it spreads to the nation and the world beyond depends on time, weather and a global economy already under stress.

When farmers crowded into their regular tables at Rachel's Restaurant on Friday morning in the Mississippi River town of Elsberry, they shared the few silver linings they could muster -- and commiserated over the grim tidings that seemed to be spreading as inexorably as the river.

After already having lost half of his 1,600 acres of corn and beans to the Mississippi, Steve Gray still held out hope that he will get by. "I'll make it some way," he said.

Market analysts have offered up dire warnings of a paralyzed heartland and record crop prices that could set off inflationary spirals throughout the national and world economy. On Thursday, the Rural Mainstreet Index, a monthly survey of more than 200 bank executives in 10 Midwest states, found that more than 41% said they expected the recent floods to "have a significant impact" on America's heartland economy.

Rising corn prices, which spiked to a record high of just under $8 a bushel before receding slightly last week, could hike the cost of breakfast cereals, pork chops, ethanol and countless other products. "It's not just going to have an impact on the national economy, it will have global ramifications," said Ernest Goss, a professor of regional economics at Creighton University in Omaha who produces the monthly bankers survey.

Yet some experts still hold out hope for positive developments that could counter the damage left by the high water, including successful late-cycle corn and soy plantings if the waters recede quickly enough and the salutary effects elsewhere in the rural Midwest from the same heavy summer rains that caused the Mississippi floods. The Mississippi had shown signs of reaching its crest and even receding near St. Louis, but excess wash from Iowa's gorged rivers swelled the river Saturday to unexpectedly high flood stages near Canton and Hannibal, Mo.

Even if the national economy staggers later this year from rising food prices, it will not be easy to tell whether the floods were a prime or a marginal factor, stacked up against already dominating causes such as soaring fuel costs and the sinking dollar.

"I don't know that we have a real good sense at this point between the flood and the other factors," said Michael D. Boehlje, a professor of agriculture economics at Purdue University. "But when you're on the edge, any small thing can sometimes have a precipitous impact."

Boehlje and other agricultural experts point to one crucial difference between the current monthlong flooding and the unrelenting high water that rose on the upper Mississippi for two straight months in July and August 1993. As devastating as the earlier floods were, they were preceded by a then-record corn surplus that kept food prices low and buffered U.S. consumers.

"The damage [in 1993] was easier to ride out in terms of lost farm production," Mattoon said. "This time the stock is much tighter. Good yields in places that aren't flooded might help us offset problems at the marketplace. Right now, though, we're not a good position."

U.S. agricultural officials had expected the country's farmers to plant 86 million acres of corn this year, an 8% drop from last year. That tightened supply has contributed to higher bread and meat prices in the U.S. and to spot international shortages that touched off protests and even food riots in Senegal, Haiti and other poor nations. At the same time, corn prices have been driven up by high fuel prices, which raise costs for transporting the corn by truck and barge, and by the plummeting U.S. dollar.

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