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Katrina's Price Tag Estimated at $1 Billion in Farm Country

While the extent of the destruction resulting from Hurricane Katrina will likely take weeks or longer to assess, conservative estimates predict a $1 billion price tag on the damage done directly to crops and livestock, according to Terry Francl, American Farm Bureau Federation senior economist, with an additional $1 billion in indirect costs expected as a result of a growing waterway shipping crisis and soaring fuel prices.

Francl's preliminary commodity-by-commodity analysis for sugar cane, cotton, soybeans and corn in Mississippi and Louisiana, which suffered the primary impact of the storm, indicates that while considerable harm was done to crops, the impact on farm production and prices nationwide will likely be negligible in light of strong harvests elsewhere in the country, particularly in terms of soybeans, corn and cotton.

With the United States already facing a tight sugar supply--and subsequently increasing the allotments for imported sugar--the price of sugar from sugar cane is likely to be the most significantly impacted by Katrina.

Cotton prices will be tied to the quality of the remaining plants, rather then the quantity, Francl says. If the bolls were opened and stained by the rain, the cost of processing will increase with the value to the producer and adjust downward proportionately. However, the overall impact on the U.S. price will be minimal given the 21 million bale-plus domestic cotton crop, as well as large global stocks.

Despite the minor effect on crop prices nationwide, Katrina's impact is already reverberating nationwide throughout the agriculture industry, primarily in the form of a severely crippled river shipping and Gulf port system and spiking fuel costs, Francl explains.

"Unfortunately, crop, livestock and poultry losses in the Delta may be the tip of the iceberg," he says.

Hurricane Katrina and soybean crops

Heavy rains from Katrina occurred some distance into Mississippi, eastern Louisiana, and parts of Louisiana, as well as in western Tennessee and Kentucky.

"If half of the unharvested soybean crop in the states of Louisiana, Mississippi, Alabama, Georgia, Florida and South Carolina were lost, U.S. soybean production would be reduced by about 1.4%," says Iowa State University economist Bob Wisner. He says that is assuming no increase or decrease in the soybean crop north of those states.

"With the usual relationship between changes in supplies and changes in price, that would boost the season average price by about 3.5%," Wisner says.  "That in turn would translate into an expected rise of about 20 cents per bushel in the marketing year average Iowa soybean price. Losing half of the crop in that area would substantially exceed past experiences with this kind of storm."

Rain as far north as the eastern Corn Belt may have a slight positive effect on pod filling, but could have caused some damage in parts of Tennessee and Kentucky. These two states in the August crop report were forecast to produce 3.5% of U.S. production (98 million bushels).

Just over 60% of corn and soybean exports originate from the New Orleans area. With barges loaded with farm goods stranded on the Mississippi River and no access for ocean-going vessels, grain elevators have reduced the prices they are paying growers and Francl cautioned that U.S. grain and oilseed producers may see the cash prices bid for exported crops decline another 5- to 10-cents per bushel while the Gulf ports are effectively shutdown for repair and restoration.

"Furthermore, there is mounting concern that the shutdown will compel international buyers to look to other sources, such as China for corn, or South America for soybeans," Francl says.

This could translate to a half-billion dollar export loss for U.S. producers.

Also likely to further undercut growers' bottom lines: rising energy prices. Crude oil derived from the Gulf accounts for 30% of domestic production, while the natural gas produced in the region accounts for 21%. About 95% of oil output was disrupted during the hurricane and in its aftermath. The ensuing 30- to 40-cent per gallon jump in gasoline and diesel prices presents another significant challenge to farmers nationwide preparing for harvest and could come with a half-billion dollar price tag, predicted Francl.