June 9, 2008

Bite Size Bad News 5--Iowa Floods

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If teevee news and the local paper are your main source of information, you may not have heard yet that there is catastrophic flooding in Iowa and adjacent states. Levees have broken around the area, most dramatically in Mason City on Sunday, where the Winnebago River breached the levees and flooded over 80% of the town, including sewage and water facilities and the electrical plant.

FEMA has been, you will not be surprised to learn, slow to arrive, and the Iowa National Guard is short-handed what with the units stationed in Iraq and all the equipment that has been left 0ver there and not replaced.

But this BSBN is about what we can learn from some folks who did get the news--commodity speculators. Starting last night in the Asian markets, corn futures soared to record highs. How severe the damage will be is not yet known. But with planted acreage underwater in scores of Iowa counties, with four million acres not yet planted, with more rain predicted, and with the traditional closing date for corn planting coming up next week, damage there will be.

The USDA had earlier predicted U.S. harvests of 154 bushels per acre. "It's getting more serious, the heavy rains just continue. There is flooding and we'll absolutely see a drop in corn yields, probably down to 148 bushels per acre now," is an updated estimate from Jason Roose, analyst for U.S. Commodities, Des Moines, Iowa.

The potential impact is being turbocharged by three factors: the neoliberalism-driven global food crisis which broke some months ago (as FotM discussed here), "free market" policies which have over the last 25 years depleted U.S. reserves of grain (below 60 days now) along with dairy and other farm products, and the use of corn to manufacture ethanol to mix with petroleum in auto fuel, removing a third of the U.S. crop from use as food or animal fodder.

And that last point raises one more ugly little question--if soaring oil prices have already driven the average gasoline price in the U.S. up to $4 a gallon, what will the impact of a flood-crippled corn crop be on ethanol costs--and gas prices?

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