Major US waterways, including the Mississippi River and the Red River of the North, have experienced precipitation levels that are 200 percent above normal this year. The combination of late season snowfall, rapidly melting snow, and heavy spring rains have caused water levels to surge to destructive levels in large parts of the United States. The brunt of the impact is being felt in the Dakotas, Nebraska, Minnesota, Wisconsin, Iowa, Illinois, and Missouri. In other worlds, these spring floods have hit the upper half of the US breadbasket where massive losses are already unfolding.
Destroyed Grain Stores + Drowned Livestock
Farmers often store portions of their harvest to sell at a future date, in the hopes that prices will improve. Last year, US farmers stored a historic volume of grain into plastic tubes and steel bins so as not to sell at a loss. Some that were cash-strapped even piled their crops inside barns or outside on the ground. As of December 1, producers in states currently experiencing flooding had 6.75 billion bushels of corn, soybeans and wheat stored on their farms -- 38% of the total US supplies available at the time, according to US Department of Agriculture (USDA) data. For context, American farmers yielded 14.42 billion bushels of corn and soybeans between September 2017 and August 2018.
Unfortunately, large volumes of these stored grains were submerged and ruined when the floods hit in mid-March. In just one county in the state of Iowa, 1.8 million bushels of corn and soybeans have been destroyed. Nationwide, the crop losses could be significant. Massive numbers of livestock were also drowned or stranded in the process.
In Nebraska, where 74 of the state’s 93 counties have had to declare a state of emergency, there’s been widespread destruction of public infrastructure, homes and businesses. Preliminary estimates put Nebraska's agricultural losses near the $1 billion mark. At least $440 million of that amount pertains to crop losses. The value of livestock losses was initially pegged at $400 million, but there are questions about how to account for lost cattle, particularly calves that were not yet tagged or recorded. US Secretary of Agriculture, Sonny Perdue, has said “there may be as many as a million calves lost in Nebraska”. In addition, feedlots lost an estimated $36 million in feed supplies in Nebraska.
Many Farms Will Delay or Cancel 2019 Plantings
More than 1 million acres of farmland was under water in March. By the time the waters recede, it may be too late for many farmers to complete their plantings for this year. Most farmers had planned to plant seed in fewer than four weeks. Damaged roads and infrastructure will also impede seed deliveries to some areas. There’s the added complication that the rivers could strip topsoil and leave behind layers of sand on the flooded fields, rendering them all-but-impossible to use, since sandy soil is bad for crops.
Unprecedented Flood Season in the United States
All told, the flooded acreage represents less than 1 percent of the 240 million acres of U.S. land used to grow grains in 2018. Nevertheless, US production of corn, wheat and soybeans will likely fall this year because the floods hit just weeks before 2019 planting season was due to start in the Midwest. Moreover, more flooding is on the way. The National Oceanic and Atmospheric Administration (NOAA) has warned that much of the United States will see historic floods this spring, which will continue through May. This also means, more crops are at risk.
Any wheat, corn or soybeans that are contaminated by flood waters must be destroyed, per USDA rules. Furthermore, the agency has no mechanism in place to compensate farmers for damaged crops in storage. That’s in part because U.S. farmers have never stored so much of their harvests before. But, a perfect storm of bumper harvests, record low prices, and an unexpected trade war that caused exports to plunge, compelled them to hold onto vast amounts of inventory last year. Now, millions of bushels of wheat, corn and soybeans have been destroyed by the flooding, with possibly more to come, and thousands of farmers will not be able to plant crops at all this year.
Will History Repeat Itself?
In 2012, inclement weather conditions triggered a monster rally in the price of some agricultural commodities. That year, wheat surged to $9.47 per bushel, corn peaked at $8.43 per bushel, and soybeans exploded to a record high of $17.94 per bushel. Since then, the price of each of these commodities has halved. Today, the per-bushel price is $4.64 for wheat, $3.64 for corn, and $9.00 for soybeans.
MRP Adds a New Theme: Long Agricultural Commodities
MRP believes tighter inventories following the 2019 US spring floods could push up the prices of affected agricultural commodities to levels not seen in years. The case is even stronger if the drought conditions experienced over the past few summers return this year (forecasters project a 50% likelihood that 2019 will become the 2nd hottest year since 1850).
Ag prices also tend to be heavily influenced by currency trends and US/China trade negotiations. Well, the greenback has softened in the wake of the Fed’s rate hike pause, and it looks like a US/China trade deal will happen soon. Those two factors should add further upward pressure on commodity prices, particularly given the importance of the Chinese market to exporters of US farm products.
If indeed a million calves were lost in the floods, cattle prices could also head dramatically higher in coming months, in the same way that the African Swine Fever epidemic has sent hog prices soaring this year.