Aug. 1 (Bloomberg) -- In 25 years of managing the Heritage Grain Cooperative in a small town outside Decatur, Illinois, Jerry Rowe’s grain elevator never lost money.
Until now. As the corn and soybeans from last year’s harvests disappear, replenishment from plants wilting in the worst drought in half a century is unlikely for Rowe’s elevator. At 215 feet, the Dalton City structure is the tallest in town, as it is in many Midwest communities that feed the economy of cities like Decatur, and ultimately, the world.
Rowe expects his bins will end up storing less than half what he held in his record year of 2007 and about a third less than last year. Farmers with fewer crops to sell buy fewer movie tickets as well as Deere & Co. tractors. Less grain means less need for truck drivers. Scarce rain means shallower waterways and half-filled barges on the Mississippi River. The farmers at the heart of the crisis, many protected by crop insurance, may not even be the hardest-hit, Rowe said.
“There will be funds available to keep them whole, or near-whole,” he said. “I can’t get that kind of insurance. The trucker can’t get that kind of insurance.”
Lost farm revenues will echo throughout the agricultural economy that supports the whole region around Decatur, a central Illinois town of 76,000 that’s headquarters to Archer Daniels Midland Co., the world’s biggest crop processor.
Drought spreading throughout the Corn Belt becomes a more-certain economic disaster with each passing week, as crops wither in the relentless heat and the growing season wanes. The In June, Decatur got about two-thirds of its normal rainfall, according to the National Weather Service.
About 24 percent of the nation’s corn was in good or excellent condition as of July 29, the worst assessment for this time of year since 1988. Only 5 percent of the corn in Illinois, the biggest crop-grower after California and Iowa, was in good condition, and none was rated excellent.
As crops fail, agriculture-reliant cities such as Decatur, which also counts London-based food-ingredients company Tate & Lyle PLC as a major employer, lose their ability to rely on the farm economy to bring in revenue, said Craig Coil, president of the Economic Development Corp. of Decatur and Macon County.
“This is an agribusiness area,” Coil said in a telephone interview. About 15 percent of the town’s workforce is directly employed in farm-related industries, the biggest single sector. Farmers, who experienced record profits last year, have buoyed the town even as its population has declined, Coil said.
ADM, the world’s largest corn processor, yesterday reported fiscal fourth-quarter profit below analysts’ estimates as its business from producing corn-based ethanol swung to a loss after the drought increased costs of the grain.
The company, which employs more than 4,200 people in the area after laying off about 175 workers earlier this year, is “monitoring the drought and its implications,” Jackie Anderson, a spokeswoman, said in an e-mail.
In Decatur, the city council earlier this week voted to rezone 105 acres to build a rail container yard to help boost ADM’s global exports from the town.
Employment at Tate & Lyle, which has about 650 workers, won’t be affected by the drought, spokeswoman Pashen Black said in an e-mail.
At McLeod Express LLC, a 350-rig Decatur-based trucking fleet that does a quarter of its business with ADM, freight rates and revenue probably will drop as smaller operators that rely on grain go after other hauls, likely forcing some firms out of business, said company founder Mark McLeod.
“Farm accounts have been canceling like crazy, and those guys are vulnerable as hell,” said McLeod. “The farm side for us has been a boom through the downturn, and we’re just not going to have that this year.”
Some of the drought’s impact will take months and years to play out, said Roger Oliver, president and chief executive officer of Van Horn Inc., which sells fertilizer, seeds and herbicides from Monsanto Co., Syngenta AG and Dupont Co. Supplies may be tight for several months as barge traffic slows deliveries, and purchases may suffer after he is forced to raise prices, he said.
The full economic impact on the broader retail and service sectors won’t be felt until next year, Coil said. “The harvest numbers in the fall will dictate what our major players in the industry will have to absorb. Then, there will be a lag effect where the severity spreads. How much depends on whether it rains.”
Farmer finances are strong enough to withstand this year, and “farmers will plant next year like they’re expecting a bumper crop,” said Jim Steck, president of Sloan Implement Co., the state’s largest John Deere dealer, who said he hasn’t seen a drop in business yet.
“Come back in three years, and if this continues, then we’re talking about something entirely different,” he said.
Still, Jim Reed, who farms 1,200 acres of mostly corn and soybeans a half-hour east of Decatur and goes to the city for entertainment, said the sight of crops dying in his fields can’t help but make him more cautious with his budget.
“People have just stopped spending,” he said. “In a normal year we’d be going to more movies, shopping more. My wife would like to buy some new furniture, and I had my eye on a new planter.”
“We’ll go to McDonald’s instead of Texas Roadhouse, because in the back of your mind you’re saying, we shouldn’t be extravagant,” he said.
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