US: June 17, 2008


CHICAGO - The worst flooding in the US Midwest for 15 years sent fresh shocks to global markets and consumers on Monday as corn prices hit record highs on fears of crop losses in the heart of the world's top grain exporter.


Corn prices at the Chicago Board of Trade soared above US$8 a bushel for the first time as relentless rains and overflowing rivers raised fears that Midwest farmers will not be able to grow much of anything on as many as 5 million acres (2 million hectares).

"The market is being driven by water," said Glenn Hollander, a veteran grain merchant on the CBOT trading floor.

"Estimates show 3 million acres of corn under water and probably 2 million didn't get planted. So that gets you up to 5 million or over 700 million bushels, and that takes out the entire carry-out," he said, referring to estimates for grain stocks carried over to the next crop year.

Overwhelmed river levees across Iowa and Illinois, which produce about a third of US corn and soybeans, have displaced thousands of people.

The White House said US President George W. Bush would visit the stricken region on Thursday.

Mostly dry weather was forecast through Wednesday in Iowa, and waters were receding. But those flows were increasing water levels well past flood stage in the Mississippi River, the most important US waterway. A dozen river locks there were already shut down due to the high water, crippling commerce.

Levees were being reinforced by National Guard troops and hundreds of volunteers on Monday in Quincy, Illinois, and other Mississippi River locations battling the rising waters.

Some of the worst agricultural flooding was in Iowa, with predictions of crop losses rising due to the lateness in the planting season. Yields from both corn and soybeans fall sharply the later they are planted after mid-May, due to inadequate root development to withstand summer heat waves.

The fears add up to more food inflation for not just US domestic consumers but dozens of countries that buy US grain. The United States exports 54 percent of the world's corn, 36 percent of soybeans and 23 percent of wheat.


STICKER SHOCK

Foreign buyers are scrambling.

"They have sticker shock right now. There are credible people in the trade who think corn will be US$2 higher in a month. It could happen. That would put beans up to US$20. It could happen. Anything can happen," said Rich Feltes, senior vice president and director of MF Global Research.

On Monday morning, the price of corn for delivery next year jumped to US$8.07 a bushel before retreating to around US$7.90, the eighth consecutive day of record prices. Soybeans for November delivery rose to US$15.65 a bushel before profit-taking.

Group of Eight finance ministers, meeting in Japan on the weekend, highlighted the threat that soaring food and oil prices posed for the global economy.

"Elevated commodity prices, especially of oil and food, pose a serious threat to stable growth worldwide, have serious implications for the most vulnerable and may increase global inflationary pressure," the ministers said in a communique that did not offer any specific remedies.

The G8 comprises the United States, Britain, Canada, France, Germany, Italy, Japan and Russia.

Some 36,000 people in Iowa alone have been evacuated or forced from their homes. Officials have estimated damage in the billions of dollars from the worst flooding in 15 years.

Flooded Iowa rivers receded from record levels in Des Moines, Iowa City and Cedar Rapids, among other towns. But the fight to save river towns shifted downstream as run-off spilled into the fast-rising Mississippi.

Some 500 Illinois National Guard Troops and 200 prisoners were stacking sandbags to try to raise levees protecting the city of Quincy. Two levees broke there in a major flood in July 1993, inundating thousands of inland acres. (Additional reporting by Christine Stebbins and Sam Nelson in Chicago and Glenn Somerville in Washington; editing by Peter Bohan and Mohammad Zargham)


Story by Andrew Stern


REUTERS NEWS SERVICE