Fuel prices may rise amid crop loss from Midwest flooding
- The price of fuel and corn products may rise in the coming weeks as Midwest states affected by record flooding continue to deal with the shifting waters. Further flooding is forecast through May.
- Some wholesale gasoline prices have already seen a jump attributable to the disruption in ethanol supply caused by the flooding, according to Platts. Corn prices are likely to rise based on the supply dip caused by the floods, among other factors. Several ethanol plants stopped production when the railroads halted service, according to multiple media reports.
- "The huge loss of crops and cattle in Nebraska due to the recent flood will soon lead to severe supply disruption to the downstream of the relevant supply chains," Rong Li of the Martin J. Whitman School of Management at Syracuse University told Supply Chain Dive in an email. "They should actively seek suppliers from elsewhere or alternative suppliers."
Though nowhere near as devastating as the impact on Nebraska farmers and ranchers, companies that rely on agricultural products from the region anticipate price hikes and lower supply for the next few months due to the persistent flooding in the Corn Belt.
"Nebraska is the third-largest producer of corn in the country, second in ethanol production and distillers’ grains, second in cow-calf production and first in cattle on feed," said Li.
Reuters put the total ethanol production affected by flooding at 13% of U.S. supply. Prices have been low in recent months since the decrease in exports caused by the U.S.-China trade war pushed up domestic supply. Now markets are beginning to anticipate a resolution to the trade war, according to Barron's, and the downtick in the supply of corn used for ethanol — the majority of Nebraska's crop — could push up the price in the near-term. Plus, the U.S. and China are heading toward fuel standard changes that could further increase demand.
Grain trader Archer Daniels Midland (ADM) expects to lose $50 to $60 million in profit in the first quarter from the flooding, Reuters reported.
Grain farmers are in a bind caused by more than the flooding. Storage bins are fuller than normal since the U.S. trade war with China led some farmers to hold off selling to wait for better prices. The prices may go up, but not to the benefit of the affected farmers since all contaminated grain must be destroyed, according to federal policy.
Early estimates value the agricultural damage at around $1.5 billion. Efforts to compensate farmers and ranchers for lost income won't help current disruptions in supply.
Li said procurement professionals need to start taking the likelihood of natural disasters into account when choosing suppliers since such disasters are becoming more frequent.
- Supply Chain Dive Shippers flock to trucking spot market amid Midwest floods
- Supply Chain Dive Flooding halts railroads, cripples agriculture along Missouri River
- Reuters Floods shut nearly a sixth of U.S. ethanol production
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