A combination of factors, most significantly Hurricane Katrina, poses the possibility of economic hardship on the nation's farmers as they enter the harvest season, says National Corn Growers Association (NCGA) Director of Biotechnology and Business Development Paul Bertels.
Bertels presented a situation report on the impact to agriculture by drought, escalating energy prices and Hurricane Katrina at the MARC2000 annual meeting this week in St. Louis.
Bertels says the tough situation faced by American farmers and agribusiness was exacerbated by the hurricane. "The problems facing agriculture," he says, "didn't originate with Katrina; they were just made much worse."
According to Bertels' analysis, the hurricane has taken barge rates from "unbelievable to astronomic levels." He notes that last week in the St. Louis area, it cost 77 cents to move a bushel of corn to New Orleans. The pre-hurricane rates showed a cost of 39 cents a bushel. Bertels noted a lot of uncertainty was bid into the barge market, as the recovery progresses, this uncertainty should disappear.
An alternative to barge transportation for growers is the railway system. However, Bertels noted it is not simply a matter of diverting the grain traffic to the railroads. "It is not really the most viable option considering the rails are already operating at heightened capacity. Factors such as limited track space and power, along with fuel surcharges, are driving up the cost of rail freight." he says. "The primary factor limiting the switch to rail is simply there is no excess capacity. Just like barges, rail has finite capacity.
Another constraint is the increasing rail freight costs, says Bertels. Unlike the open bid/offer system in barge markets, rail supply demand is not as transparent. One good proxy however is to look at the secondary car market where shippers trade guaranteed freight. "Last week, shippers were willing to pay $600 per car for guaranteed freight for October shipments," he says. "For corn growers that works out to cents per bushel just to get the car. Then there is the freight rate, plus an additional 12% fuel surcharge. So while barge rates are high and the supply has contracted due to the storm, rail rates are equally as high and rail capacity is also limited.
Bertels told the group that on top of the transportation factors affecting corn growers' bottom lines the price of primary inputs â€“ fertilizer and fuel are also increasing.
"The price of corn grower's primary inputs 'are going through the roof,' he says. He told the group the good news is the fertilizer plants escaped high levels of damage, but they are currently out of operation because of disruptions in power and the natural gas supplies.
As NCGA has long recognized, natural gas is a critical component to farmers' operations. Nitrogen is the largest fertilizer nutrient used in corn production and the key ingredient in nitrogen production is natural gas. "With disruptions in the Gulf production and limited supplies, we are facing serious impacts on all growers," says Bertels.
As of Sept. 12, wholesale on-road diesel prices were $2.42 per gallon and off-road diesel was $2.01 per gallon. These fuel prices increased with the Hurricane and have impacted growers at a crucial time - harvest. "On-farm fuel consumption is dominant in the spring and fall seasons, Bertels says. "On the farm when it is time to plant, it is time to plant, and when it is time to harvest the combine must run."
Bertels did say a quick recovery from Hurricane Katrina will help to mitigate much of the rising costs faced by the agriculture sector.