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Hurricane costs mount on Louisiana farms

In late September, it was estimated that Louisiana had sustained $700 million in hurricane damage to its agriculture and forestry industries. Most of that was caused by Gustav, says Kurt Guidry, LSU AgCenter economist.

“Because of the damage from Gustav, by the time Ike arrived, we’d already zeroed out a lot of the crops — you can’t lose much when you’re already at zero.”

Gustav caused about $530 million in damages. Ike brought loss totals another $100 million, or so.

“Just for agriculture and forestry, Louisiana losses were about $640 million. Add another $100 million in damages to aquaculture and fisheries and that’s how we got the preliminary $700 million to $750 million figure.”

Numbers Guidry is currently crunching suggest adding infrastructure damage to the tally “now pushes Louisiana losses to $950 million.”

How bad things are in the state varies by region.

“Now that weather has improved, we’re seeing some variability in terms of damage. But, for the most part, quality and damage issues have been awful.”

That has led many growers with grain contracts into “a jam — particularly with soybeans. Add to that the fact that farmers may have to pay additional money to get out from under those contracts, and you can see how this has people very frightened. This is a very, very difficult financial situation for many producers.”

Grain elevators are also in a tight spot. In a well-attended meeting with Louisiana Sen. Mary Landrieu in late September, an owner of a large grain elevator spoke.

“He said farmers need a lot of help but the situation is also critical for grain elevators,” reports Billy Guthrie, a ginner from Newellton, La. “He said last spring when soybean prices were over $7 and there were historically great prices, a lot of farmers went out and booked 40 bushels per acre. Then, when the prices spiked, the elevators put up a bunch of margin money.”

Now, elevators are rejecting soybeans because they’re off-quality.

“The farmer that has 40 bushels contracted will need to come up with $5 per bushel to get out from under that contract,” says Guthrie. “That’s just to get out of the contract! Then, he has no crop to sell because it’s unacceptable and that means he can’t pay his crop loan at the bank. That’s just horrible.”

By now, everyone knows there are national problems with credit availability. But even if that was taken out of the equation, Guidry says it would be “difficult for some farmers to survive financially” in post-hurricane Louisiana.

“Look at the cost of production over the last several years. Even though, some say ‘well, there are higher commodity prices,’ they aren’t enough. The carryover of producer debt was already a real problem.”

And Guidry isn’t optimistic that economic conditions in 2009 will allow producers to pay back 2008 carryover debt. “When you look at the 2009 potential cost of production increases and margin calls, it’s difficult to pencil out for many.”

And the reduction of commodity prices in early October doesn’t help. When looking at cost of production estimates for 2009, “the last thing we need is a significant reduction in commodity prices. The 2009 crop will be expensive to grow unless there is a dramatic drop in input costs. I’ve been in this job for going on 15 years and I’ve yet to see input costs go down very fast.”

The nation’s financial situation means banks must rethink what they’re willing to take on as far as risky loans.

“Unfortunately, agriculture is a risky proposition. Will this result in the changing of criteria for getting operating loans by producers? Will those be restricted and limited? That remains to be seen but any tightening of the purse strings could have an impact on producers’ financing.”

Are there any plans in the works to help bankers or farmers?

“It hinges on what kind of assistance the congressional delegation can get. Looking at the current disaster assistance programs, farmers have access to crop insurance. Anything above and beyond that is in the (new) farm bill.”

Unfortunately, things aren’t clear-cut because of the way the new farm bill’s SURE (Supplemental Revenue Assistance) program works — or, more accurately, doesn’t.

“Everything is tied to the crops in the year of the disaster. For example, a producer may have a 60 percent reduction in his cotton crop. But if he’d had a good wheat crop harvested in May and was able to harvest, say, 80 percent of his corn before the storms hit, there’s a good possibility he won’t be eligible for any disaster assistance under SURE.”

And even if he is, the final rules and regulations haven’t been developed yet.

“If you read the SURE program outline, one of the key components cited is a marketing year price. Well, we’ve just started the marketing year for most commodities and won’t finish it until fall of next year.

“That’s why we have concerns that this new farm bill won’t provide much in the way of disaster assistance. And we also have concerns that any assistance it might provide won’t arrive until fall of 2009.”

Many Louisiana growers are still tied up with harvest but Guidry says LSU economists have still been fielding plenty of questions.

“Most are unable to fulfill grain contracts. They want to know what their options are.

“There are plenty of situations where producers have had bad losses due to the hurricanes. Their catastrophic (CAT) crop insurance won’t offer a lot of assistance. The disaster program, in many cases, won’t offer much assistance either.”

So, producers have revenue losses and, “adding insult to injury, may have to use out-of-pocket funds to come up with the difference between their contracted price and current cash prices to get out from under their contracts. It’s just ugly and may get uglier.”

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