Farmers in the nation's heartland will likely feel the pain of Hurricane Katrina in two main ways — higher energy costs and lower cash grain prices, according to Darrell Mark, a University of Nebraska Institute of Agriculture and Natural Resources (IANR) marketing specialist.
“This really couldn't have happened at a worse time,” says Mark.
The grain price basis — the difference between local grain prices and futures prices — already has been wide all summer, he says. With New Orleans devastated, that gap is likely to grow and local prices may drop, at least in the short term. Basis prices for corn and soybeans near the Mississippi dropped 10-15¢ one week after the hurricane, says Mark.
“It's not surprising that the larger impacts are being felt first closest to the river,” Mark says. “As things continue to get backed up, I wouldn't be surprised to see some price drops here.”
Nebraska has an advantage over states further east that depend heavily on the Mississippi and New Orleans for grain movement. The Cornhusker State ships at least a third of corn bound for foreign export through the West Coast, 26% to Mexico by rail and 34% through the Gulf.
“Nationwide, 72% of corn is exported through New Orleans. Nebraska isn't going to be as affected as eastern Iowa, but we will still be affected,” Mark explains. Nebraska's strong livestock and ethanol industries also will help sustain local cash prices. These local markets give Nebraska grain producers a comparative advantage over growers in some other states.
There's still a lot of last year's corn stored in elevators and farm bins, Mark says. Where to put grain from this fall's harvest could become a major question if movement of last year's grain is slowed, rerouted or backlogged. The tight storage situation “might force some farmers to take lower prices” for this fall's harvest, he says.
Further increases in already high fuel and natural gas prices will be costly to farmers, Mark says. In addition to fuel for machinery, most farmers use natural gas or propane to run grain driers.
“Natural gas prices have been substantially increasing. That will impact grain drying and fertilizer costs,” he says. “Not only are nitrogen fertilizer prices significantly higher than this spring, it's hard to find supplies at any price for fall application. That's going to affect next year's crop production.”