NEW YORK -- Intense rainfall in the Midwest has driven soybean prices to a three-year high, helping to boost grain prices on the commodity futures market and threatening to nudge up inflation.
The rains, which have swollen sections of the Mississippi River to record levels and cut barge traffic, have also flooded farmers' fields, preventing them from using heavy planting machines. About 3 million acres of soybean fields, or 5 percent of total U.S. soybean acreage, remain unplanted.
If the weather somehow confounds forecasts and turns idyllic, some of those fields could be planted, but yields would be only half the usual amount and leave the crops susceptible to early autumn frosts, said Gary Benjamin, an agricultural economist with the U.S. Federal Reserve Bank of Chicago.
The result has been that November's soybean harvest has been bid up to levels not seen for three years.
The price of a bushel on the Chicago Board of Trade closed yesterday at $6.67 3/4 , up 3 3/4 cents, for a 16 percent increase since June 14.
"Prices can clearly go up another 50 cents to a dollar, and the only reason they're going up is the weather. It's ruining the crop," said Dan Cekander, director of grain research at Rodman and Renshaw Inc., a commodity trading house in Chicago.
Grains have been affected as well, reaching 60-day highs. Soybeans are used as livestock feed, so many traders are betting that the more plentiful grains will be used instead. In addition, the rains have hindered corn growth and slowed wheat harvesting.
The price for July wheat delivery increased 10 cents, to $3.02 1/4 a bushel, while July corn was 1/2 a cent higher, at $2.31 1/2 a bushel.
Despite the increased soybean and grain prices, economists were optimistic that the effect on inflation would not great.
Food prices account for one-sixth of most inflation indexes, and grain influences only 10 percent to 20 percent of food prices, said Alan Barkeman of the Federal Reserve Bank of Kansas City.
"We'd need to see a huge run-up in crop prices for inflation to be affected too much. Right now it seems manageable," Mr. Barkeman said.
Prices have been distorted in some Midwest states, Mr. Barkeman said, especially where the suspended barge traffic has created grain deficiencies or surpluses.
Grain has built up in depots in Iowa, for example, helping to drive down prices and causing many farmers to take steep losses.
The last time grain helped fuel inflation, several other factors -- now missing from the equation -- combined with bad weather, Mr. Barkeman said.
In 1973, newly instituted sales of grain to the former Soviet Union, along with bad weather and a general climate of inflation, helped drive up food prices and, in turn, the inflation rate.
The higher soybean prices, however, did manage to spike up the Commodity Research Bureau index yesterday, which had its biggest single-day rise this year.
This caused nervous traders to bid up the price of gold, a traditional shelter against inflation, to a 2 1/2 -year high.