Farmers fear Katrina will keep their goods from market

Thursday, September 15, 2005

COLUMBIA, Ill. -- His face smudged with dark grit, Glen Mueller stepped down from a combine this week and stared out across a corn crop jeopardized by quandaries far larger than the machinery towering over him.

He and other farmers are facing a double whammy as the harvest begins. The record yields of last year are a faded memory, replaced by crops parched, browned and thinned by months of drought. And now, damage done by Hurricane Katrina threatens to push up the cost and create delays in getting this year's crop to export terminals down the Mississippi River.

"It's going to be a rough year," says Mueller. "I just hope to make enough to be here next year."

The snarled barge traffic caused by Katrina continues to threaten the ability of Mueller and other farmers to get their grain to overseas markets. Many farm cooperatives and grain elevators say they have little, if any, storage space for farmers who still haven't even hit the stride of their harvests.

The United States exports a quarter of its grain. More than half of what's exported departs from Gulf ports pounded by Katrina. Grain-carrying ships are slowly moving again through those ports, but problems remain.

At agribusiness giant Bunge Limited's export terminal in Destrehan, La. -- which normally handles a million bushels a day -- operations remain slow. The problem is a lack of available barges that can head north, retrieve grain from Midwest farmers and bring it south to Gulf ports, spokeswoman Debra Seidel said.

"Progress is being made, but it's not near normal yet," she said.

The river disruption is rippling through the farming economy. Midwest co-ops and grain elevators looking to clear out stored corn from last year -- about two billion bushels, according to the National Corn Growers Association -- say they're having a tough time doing so because, among other things, barges are getting snarled down south.

"It's a fight for barge space right now," said Dwight Asselmeier, grain merchandiser at Gateway FS Inc. in Red Bud, Ill., the grain elevator where Mueller generally stores his grain. Gateway's elevators, capable of holding 4 million bushels, are already are nearly full, forcing growers to find other storage.

The shrunken barge fleet has sent shipping costs up sharply.

At northern Illinois' Normandy Elevator near Walnut, for instance, manager Art Heidenreich says the cost of barge freight he uses to move half of his corn to southern U.S. markets -- he uses rail for the rest -- has spiked 40 cents a bushel since Katrina.

That is putting the squeeze on farmers.

The price farmers get for a bushel of corn went from $1.96 before Katrina made landfall to $1.68 six days afterward, according to a survey of seven grain elevators along the Illinois and Mississippi rivers by Illinois State University agricultural economist Rick Whitacre.

The price drop "was like falling off a ledge," Whitacre said.

The price has rebounded by about 15 cents a bushel, but remains substantially lower than what farmers were paid at this time last year.

In its monthly crop report released Monday, the Agriculture Department upped the forecast for corn by 289 million bushels to 10.64 billion bushels, down from last year's 11.8 billion bushels. Prices should average $1.70 to $2.10, down 10 cents from last month. Last year's average was $2.06.

As of Tuesday, for instance, Heidenreich's Normandy Elevator was offering $1.615 a bushel for corn.

Crops usually change owners several times before being shipped from the Gulf of Mexico. Farmers often sell newly harvested corn or soybeans to the local grain elevator, which may sell to a river terminal or agribusiness company terminal. From there, crops are loaded onto barges for the trip to the Gulf, where barge cargo is loaded into export terminals and then onto ships.

Commodities pricing isn't an exact science. After buyers and sellers on the Chicago Board of Trade set the general price of corn, elevators deduct from that what they would pay to get the grain to a particular market, factoring in the key issue of transportation and, to a lesser extent, cost of drying the grain.

It's hard to determine what the depressed commodity prices will mean to U.S. consumers. Some experts say higher transportation costs could nudge up the price of goods like corn syrup or corn flakes. But Dennis Conley, a University of Nebraska agricultural economist, said the problems with shipping goods overseas could increase U.S. inventories, lowering production costs for food makers that could get passed along to consumers. The price of chicken and red meat could also fall, since corn is used as animal feed, he said.

Many farmers, including Mueller, look to store much of their new crop until December or January, when they could get a better price. Without room at grain elevators, they'll have to find bin space on their farms or do what growers dread: Store the corn on the ground and risk seeing it rot, as was the case last year at many elevators that struggled to handle the record crop.

Farmers could opt to hold off on their harvests -- a prospect carrying its own risk of subjecting the crops to devaluing added moisture as autumn approaches. Bringing in the crops now could save on drying costs, letting nature do the job instead of pricey propane.

"That's the box a lot of folks are in," said Leon Corzine, the National Corn Growers Association's president who grows corn on 2,000 acres near the central Illinois town of Assumption.

Protracted river traffic jams at New Orleans could force shippers to rely on rail or trucks -- more expensive options, notably with fuel costs soaring. Midwest grain instead could be routed to the Pacific Northwest for shipping overseas, assuming farmers can find the rail cars and trucks already in tight supply to get the grain to those ports.

The problems confirm pre-Katrina concerns raised by University of Nebraska agricultural economist Dennis Conley that even a moderate disruption of exports at New Orleans could cost up to $900 million in lost corn exports.

"This is of a scale that will be felt for a long time," Conley says, "for months and probably into next year."

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