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Floods will cause ripple across US economy
CHAMPAIGN, Ill. (AP) — Floodwaters receding into the Mississippi River and its tributaries will suck billions of dollars out of the Midwest's economy, though probably not as much as the 1993 flooding that devastated the region.
The impact on U.S. economic growth is expected to be small, but it is difficult to make accurate estimates because water still stands over farm fields, roads and in many homes. Forecasts call for more rain across the region through at least Saturday.
Federal and state agriculture officials say the real damage won't be known until after the fall harvest. A report due Monday from the Department of Agriculture should give the country its first glimpse of the damage to the corn and soybean crops.
The Farm Bureau has pegged Iowa's agricultural losses alone at roughly $3 billion, while Indiana agricultural officials estimate the state's losses at $800 million. Experts say it's too soon to even estimate the losses in Illinois and Missouri, which are also big corn- and soybean-growing states.
The effects of snagged barge and freight traffic, and insurance claims by water-logged homeowners and businesses, will likely add billions to the financial toll.
All told, the natural disaster will deliver a serious but manageable blow to the U.S. economy, which is already beset by high food and energy prices, falling home prices and a tight credit market that is making people and businesses cautious about spending, economists said.
"It's just another thorn in the side," said Douglas Porter, an economist at BMO Capital Markets. Porter predicted the floods would shave a few tenths of a percent off the country's annual gross domestic product, a measurement of all goods and services produced in the U.S.
By comparison, the country took a $22 billion hit 15 years ago, when the swollen Mississippi River left water standing in fields and streets for more than three months in some places. That decreased annual GDP by about 0.3 percent, Porter said — and that was barely noticeable to the economy as a whole.
One major difference today — and a caveat in economists' relatively benign forecasts of the floods' likely financial impact — is that the flooding of the country's fertile midsection comes against a backdrop of soaring grain and food prices.
"Probably the biggest area of concern will be agricultural losses," said Rick Mattoon, an economist with the Federal Reserve in Chicago.
The Midwest provides the bulk of the nation's corn and soybeans, key crops used across a range of foods, from cereal to cakes and sodas, as well as the livestock industry's favored feeds. Iowa and Illinois, the country's No. 1 and No. 2 corn producers, last year accounted for just over a third of the country's 13.07 billion-bushel corn crop.
The flooding started in early June on the Mississippi River and some of its tributaries, as well as other Midwest rivers such as the Wabash in Indiana and Illinois. Days of heavy rain fell on a region already soaked by a cool, wet spring, sending the rivers out of their banks.
Any idea that this year's corn crop would yield the bounty needed to ease already short supplies is gone. Corn prices have increased by more than 80 percent in the past year on demand overseas and to fuel ethanol plants, contributing to global food-price inflation at a time of rapid economic growth in China, India and other developing nations.
In Iowa, 8 percent of the 13 million acres the U.S. Department of Agriculture anticipated would be planted is flooded. Thousands of acres of what would have been soybeans — another big crop in Iowa and across the Midwest — are similarly waterlogged.
Problems are less dramatic in other corn- and soybean-growing Midwestern states, but in Indiana the state Agriculture Department has said 10 percent of both crops has been damaged by rain and floods.
Farmers whose fields are under water are starting to do their own math.
Hoot Jones figures about 400 acres of his land just off the Mississippi near Old Monroe, Mo., are under water. He has some crop insurance, which will cover his costs on more than half that land, which is about 40 miles north of St. Louis. But he couldn't afford full coverage.
And at this point, the 60-year-old Jones says, there's no chance the water will recede fast enough to let him plant again.
"We're done for the year," he said.
Transportation industries are measuring their costs in barges idled on the long stretch of the Upper Mississippi that remains closed and trains that, at least for a time, couldn't get past flooded or washed-out tracks.
Union Pacific, which is based in Omaha, Neb., and whose routes were heavily affected by flooding, expects the floods to cut its profits this quarter by a nickel a share. That's about $25.8 million.
It's tough to say how many tow boats and barges are stuck on the Upper Mississippi. But on any given day at this time of year, an average of 60 tow boats pulling 15 barges would be moving through that now-closed section of river, according to Lynn Muench, a spokeswoman for the American Waterways Operators trade group.
Larry Daily, president of Alter Barge Line in Bettendorf, Iowa, estimates his company spends $5,000 a day on an idling tow boat and up to $200 a day per barge. With four boats and 130 barges stuck, the flood has cost Alter more than $500,000 since it began earlier this month.
The Army Corps of engineers says the river may open up again by mid-July.
While the liability for flood-insurance claims falls on the federal government, large numbers of home, business and crop claims will fall on the insurance industry.
State Farm, which handles more than 20 percent of the home-insurance business in the Midwest, has already received more than 67,000 claims, spokeswoman Missy Lundberg said.
The U.S. Small Business Administration has already given more than 7,300 disaster-loan applications to businesses in the three states declared disaster areas — Iowa, Indiana and Wisconsin.