U.S. floods could reduce world corn supplies, raise food prices

Other livestock owners may switch to cheaper feed made from barely or wheat, adding to already high demand for those grains.

“In some cases, hog and cattle farmers are seeing feed prices double,” said Iowa corn farmer Russell Meade, who also sells hay for livestock. “Those guys are going to be put in a financial squeeze.”

It’s the same gloomy story for U.S. ethanol producers, who are already being threatened by high corn prices and political pressure to roll back or eliminate federal subsidies.

Citigroup analyst David Driscoll this week advised investors to sell shares of publicly traded ethanol producers such as VeraSun Energy Corp. and BioFuel Energy Corp., driving their shares sharply down.

Many smaller ethanol producers might have to idle plants until corn prices fall, said Michael Swanson, an economist for Wells Fargo & Company.

Ethanol makers are spending almost as much for their raw material as they’re getting for their finished product.

“If you’re going to lose more money by actually doing your thing, you’re better off not doing your thing,” Swanson said. “The question is, do you have enough cash to tide you over? A lot of these guys don’t.”

Farmers were expected to plant 86 million acres of corn in 2008 — an 8 percent drop from last year. After the flooding began, the Department of Agriculture reduced its projected corn harvest to 11.7 billion bushels, a 10 percent drop from last year.

On June 30, the USDA will release an updated estimate on the size of the 2008 corn crop, and many expect it to be significantly smaller than the initial numbers.

John Olsson’s farm in central Illinois has been pelted by one steady rain after another. The storms kept him out his fields and washed away fertilizer.

“I don’t think we’ve had two five-day periods all spring without some type of rain,” the 46-year-old farmer said from his home near New Berlin, Ill., about 90 miles northeast of St. Louis. “It’s like death by a thousand cuts.”

Most of his 650 acres appears to have water damage, meaning it will likely produce less corn. “There’s no way we’re going to have a crop like we’ve had the last few years,” he said.

Others are holding out hope, noting that there’s still plenty of corn that hasn’t been flooded. Corn can survive underwater for a few days if it doesn’t get too hot.

“We still need to evaluate how many acres are really gone and really not,” said Ken McCauley, a Kansas farmer and chairman of the National Corn Growers Association. “Agriculture is really good at bouncing back, and things aren’t always as bad as they seem.”

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