Corn market settles after Midwest weather woes

By Susanne Retka Schill and Ryan C. Christiansen | August 04, 2008
Corn buyers breathed sighs of relief in mid-July as the corn market retreated from the $8-per-bushel spike caused by fears of crop losses due to flooding in the Midwest.

Heavy rains caused flooding in key parts of the Corn Belt with Iowa hit the hardest. Abnormally heavy 10- and 12-inch rains sent Iowa rivers over their banks, and heavy rains from the same storm systems left sodden cornfields in southern Wisconsin, southeastern Illinois and southern Indiana, raising fears of extensive drown-out. The June rains added to the market jitters caused by a cool, wet spring that delayed planting across much of the Corn Belt.

Trying to gauge the extent of the damage, the USDA's National Agricultural Statistics Service reinterviewed approximately 1,200 farmers June 23-25 to supplement data collected in the normal survey procedure for the June Grain Stocks and Acreage Report. Because the flood damage didn't affect the numbers reported by the USDA as much as expected and there was a slight increase in corn planting from the acres reported in the spring planting intentions report, the corn market began its dive. Good weather in July improved production prospects, adding to the downward trend. By late July, the corn market had dropped $2 from the peak.

Corn-friendly temperatures and adequate moisture were needed in July for pollination, which occurred nearly two weeks later than usual and into August for replanted acres, according to Iowa State University Extension corn specialist Roger Elmore. Once the corn finished pollinating, he said yields will be closely tied to fall temperatures. Corn growth models run by Elmore show a year reminiscent of 1999 with a warm fall and a late frost that could produce yields near 96 percent of normal. However, drastic temperature swings or
an early frost could cut yields to as low as 45 percent of normal.

The combination of crop development and actual final acres harvested will determine the size of the crop. "People are still wondering [about] the NASS update," said Darrel Good, extension economist for the University of Illinois. "They think farmers reported what they expected to get replanted, and the question is whether that got done. My guess is the market has built in a slightly smaller harvested acres number than what the USDA reported in June."

Overall, Iowa's ethanol industry was lightly affected by the flooding. Archer Daniels Midland Co.'s plant in Cedar Rapids, Iowa, suspended production for a few days due to interrupted water supplies from the city. Penford Products Co. had just completed work on a new 45 MMgy ethanol wet mill prior to the flood, according the Iowa Renewable Fuels Association, and anticipated it would be the end of August before it would begin manufacturing significant volumes. A third unnamed plant in Cedar Rapids experienced rail disruptions from a washed out Union Pacific rail line.

Several main and branch rail lines, especially east-west routes, were closed or curtailed due to washouts of tracks and bridges under water. Some railroads had trains stranded between washouts. Monte Shaw, executive director of the IRFA, said the situation was especially challenging in mid-June. There were delays, he said, and producers ended up paying more to ship their product to market using alternative rail routes through Canada or trucks instead of railcars. "I take my hat off to the marketers and logistics folks in the industry," Shaw said. "We took a 500-year flood and from the customer's standpoint didn't miss a beat, but that doesn't mean we didn't work really hard to make that happen. I don't want to minimize a flood, but after taking a step back, the decimal point [for production] doesn't change. The amount of production that was offline for a few weeks is almost back up to full capacity."