Gary D. Schnitkey, an agricultural economist at the University of Illinois, is an expert on risk management who studies issues affecting the profitability of farms. He spoke with News Bureau business and law editor Phil Ciciora about what effect the Mississippi River flooding will have on the summer growing season, and what it could mean for farmers and consumers.
How will flooding along the Mississippi River affect crop yields and commodity prices, or is it too soon to tell?
Flooding will take out acres along the Mississippi River. This will, in general, reduce supply and increase crop prices.
As of May 22, 79 percent of corn had been planted in the 18 states that account for 92 percent of corn production in the United States. The 79 percent figure is near the average from 1980 through 2010, so the near-historical average for corn planting suggests that corn acres may not be lost in 2011.
More potential acres likely will be taken out of production away from the rivers, though. Much of the eastern Corn Belt and upper Midwest have low amounts planted. There are, for example, 3.3 million acres of corn in Ohio that have not yet been planted. Weather and planting progress over the next two weeks will likely have a large impact on acres planted in 2011.
What effect, if any, will this have on farmers in the Corn Belt?
Corn Belt farmers have had a late spring, particularly those in the eastern Corn Belt. This will tend to reduce yields. However, it's too early in the growing season to say whether yield losses will actually occur. A good growing season could make up for much of the losses.
With commodity prices booming, farmers thought they were going to be in great financial shape this year. How much of farmers' losses will likely be covered by crop insurance? How many farmers have crop insurance or some sort of risk-management plan?
Last year, 83 percent of corn acres were insured. Similar percentages will exist across differing crops. The same percentage will likely exist this year.
If the crop cannot be planted, most crop-insurance policies will make prevented planting payments, which will provide a buffer against crop losses. However, taking prevented planting payments is by no means as financially attractive as planting a crop and getting a good yield. This may be a particularly bitter situation this year as commodity prices are high, creating good income potential. Farmers with many prevented planting acres will miss out on this opportunity.
How soon can consumers expect to pay more for food, clothing and other goods affected by the floods?
It's too early to tell. Much will depend on weather during the summer. Good weather could compensate for flooding and wet weather. But average or poor weather could cause low production. At this point, flooding and wet weather increase the need for a good growing situation.
