Grain farmers throughout the Midwest were already expecting low selling prices because of a large inventory and high transportation costs for grain towards the end of August. Then Hurricane Katrina hit, adding insult to injury.
Due to the law of supply and demand, the export grain market was already in a downward trend, said Randy Fortenbery, director of Renk Agribusiness Institute at UW-Madison.
\We had a lot more grain left over from last years harvest than we usually do,"" Fortenbery said, ""it was a record harvest for both corn and soybeans.""
""In addition,"" Fortenbery said, ""because of the drought this year, the rivers were already very low. For example on the Ohio River, which serves Indiana, southern Illinois, Kentucky and all the farmers in that area, there were already seven or eight days this year where they couldn't move barges at all.""
The Mississippi was also low, he said, so the same amount of barge traffic wasn't delivering the same amount of product down to the Gulf of Mexico. Inventory then increasingly backed up and storage facilities started running out of room.
When there is high supply such as with the grain market, prices for farmers fall.
Although major grain elevators west of New Orleans were not badly damaged, over 100 barges were lost or sunk, Fortenbery said. Workers scattered and those who stayed were without adequate housing, food or water. For a couple of weeks, he said, ships coming from the Gulf of Mexico could not get into the Mississippi to load grain brought down the river on barges because of problems in the channel.
Also, the cost of transporting goods on the Mississippi on barges more than tripled, Fortenbery said.
Almost overnight, farmers got 15 to 25 cents less per bushel of corn, due to the increased costs in transporting, said John Petty, executive director of the Wisconsin Agri-Service Association.
When it costs more for a farmer to send the product down the river, the seller and the buyer split the difference in the cost.
""If the price drops suddenly, that tells farmers not to sell. So sales by farmers all but ceased,"" he said, leaving grain in excess supply.
The U.S. exports nearly 35 percent of all the soybeans produced, Fortenbery said, and about 16 percent of all corn.
""That is also true for the corn we produce in Wisconsin,"" said Bob Olsen, executive director of the Wisconsin Corn Program. ""We export 35 to 60 million bushels, mostly down the Mississippi, although a small amount goes out through the Great Lakes from Milwaukee.""
The drought, excess inventory from last year and the hurricane caused some serious setbacks for the export grain market.
But then again, set backs are commonplace in this industry according to Olsen.
""The system seems to be back to nearly full operation,"" Olsen said. ""If there are no more setbacks, we will still see 'normal' disruptions of some kind during fall harvest.""
So far, operations are back to 80 percent of capacity, Petty said.
Although consumers in the U.S. will not notice higher prices for grain-based goods, the prices for some import commodities such as coffee, sugar and cocoa may increase, according to Fortenbery.
""We already had transportation costs increasing for imports, affecting the price we pay,"" Fortenbery said.
He said New Orleans is a large receptacle for commodities and a lot of inventory is stored there. As a result, the state of the stored inventory was in question.
""In the short run, any price increases you see in those commodities are much more clearly aligned with Katrina because of uncertainty about whether the inventory exists that we had before and how much has been lost,"" Fortenbery said.
The good news is Madison grocers have not felt a very large effect.
Jim Huberty, general manager at the Regent Market Cooperative, said since Hurricane Katrina he has noticed an increased fuel surcharge his store pays for delivery trucks.
""We have to figure the surcharge into our selling price for goods, but it hasn't been very substantial,"" said Huberty.
