Risk management firm says Midwest crop flooding to hit trucking, rails, GDP

Approximately 1/3 of total U.S. corn crop and 30 percent of the total U.S. soybean crop were impacted by flood conditions in key Midwest growing region. (Copyright 2008 Jupiterimages Corp.)

The Trucker News Services

6/30/2008

NEW YORK — Storm Exchange Inc., a weather risk management service, projected today that the flooding in the key corn and soybean growing regions of the U.S. will impact up to 12 percent of total GDP output and 14 percent of corporate profits across a variety of industry groups including farming, food and beverage, railroads and trucking. The outlook, entitled “Weather Forecast & Risk Scenarios for Agriculture,” was issued as part of the weather-risk management firm's monthly analyst call, in which a group of financial analysts and atmospheric scientists assess the impacts of this adverse weather on businesses.

The Storm Exchange agriculture risk outlook is based on a combination of atmospheric climate trends, dynamical seasonal prediction models and statistical analog forecasts that are applied to microeconomic and macroeconomic analysis of the individual industry groups that are most sensitive to extreme weather conditions. Among some of the key observations driving the outlook are the following:

Approximately 1/3 of total U.S. corn crop and 30 percent of the total U.S. soybean crop were impacted by flood conditions in key Midwest growing region.

The closest historical analog to this kind of rainfall in the agricultural states is 1993, when corn prices jumped 15 percent and soy prices jumped 26 percent between June and July.

Several key industries in the transportation sector, including barges and railroads are expecting major earnings shortfalls as a result of the storms.

More than 75 percent of processed foods contain corn, either as starch, sweetener or protein. A major supply interruption will exert further inflationary pressure on food prices.

In May, Storm Exchange projected that U.S. corn yield would be 7 percent below trend this year, largely predicated on delayed planting dates and cold, wet seed beds. Corn yields may now be as much as much as 10 to 12 percent below trend. Over the last 12 months, Storm Exchange has accurately predicted weather-related shortfalls in the retail and agriculture sectors.

“Current estimates on the total impact that the Midwest flooding will have on the economy fall short because they have focused too narrowly on farm production,” said Paul Walsh, Storm Exchange Chief Strategy Officer. “While crop yields are sure to be impacted, the ramifications are much more far-reaching. In the current economy, agriculture production has become a lynchpin to hold back inflation; a supply interruption of this scale will create ripples throughout the economy.”

The Storm Exchange projection that 12 percent of U.S. GDP and 14 percent of corporate profits will be negatively affected by the Midwest floods is derived using data from the U.S. Bureau of Economic Analysis in conjunction with Storm Exchange's proprietary risk analytics. The impact to 12 percent of U.S. GDP excludes consumption and the impact to 14 percent of corporate profits excludes retailer profits.

For more information, or to receive a copy of the Storm Exchange report, “Weather Forecast & Risk Scenarios for Agriculture,” contact John Roderick, john@jroderick.com, (631) 656-9736.

Storm Exchange is a provider of weather-related financial risk and information services.