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Jun.19
11:59 AM ET
Thursday, 19 Jun 2008
Midwest Floods Impact on the Markets
Topics:Railroads | Commodities | Agriculture | Stock Market
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Local farmers in Iowa and Illinois are expecting crop production to decrease by as much as 50% this year from 2007 levels, as the current flooding could delay planting by up to five weeks. On Tuesday, the U.S. Department of Agriculture said that it expects this year's production to decline to 11.735 billion bushels, a 10% decrease from 2007 levels, sending inventories to a 13-year low. Corn futures for December delivery at the CBOT hit a record intraday high of $7.91 per bushel, as the United States, the world's largest producer and exporter of corn, continues to be affected by flooding in the Midwest region.
An increase in the price of corn and soybeans results in higher feeding costs for farm animals. Live cattle contracts for August delivery at the CME are up 4% from a week ago, after hitting an all-time intraday high of $104.40 per lb yesterday. According to Krishna Guha, Chief U.S. Correspondent for the Financial Times, the 65% increase in corn prices year-to-date affects all the products for which corn is an input, including meat and dairy products as well as ethanol.
According to Mr. Guha, many ethanol-producing companies, especially the small ones, are running at a loss due to the increase in corn prices. For example, shares of VeraSun Energy [VSE Loading... ()
In Iowa, 83 of the state's 99 counties have been declared disaster areas affecting commercial traffic throughout the area. "All transport, and all commodity deliveries have been suspended or slowed tremendously," said David Swenson, an Ohio State University Economist, during an interview on Power Lunch.
Union Pacific [UNP Loading... ()
During yesterday's afternoon trading, shares of Burling Northern Santa Fe were down about 7% from a week ago, while shares of Northfolk Southern (NSC), and CSX (CSX) were down 3.78% and 2.54% respectively.
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