Possible Damage to Soviet Crops Sends U.S. Commodity Prices Soaring
U.S. farm commodity prices rose sharply for the second straight day Wednesday amid speculation that a possible meltdown at a second Soviet nuclear reactor in Chernobyl increases the potential for damage to that nation’s grain and livestock production, and for bigger sales of U.S. food overseas.
Prices of grain, soybean, livestock, cotton and sugar future contracts rose on U.S. commodity exchanges, some to the limit allowed for daily trading. More price rises may come, some analysts said, depending on future news about where the clouds of nuclear gases are blown and whether the radioactive fallout is strong enough to sicken livestock, contaminate crops and milk, pollute waterways, make fields unsafe to work or sterilize land.
“If the radiation is not severe, the Soviets just might decide to use the crops anyway,” and production might not be affected much, said John Urbanchuk, director of international agriculture at Wharton Econometric Forecasting Associates, a Philadelphia-based economic research firm. “But if it’s real severe, they might not be able to harvest at all.”
Soviet Union’s ‘Iowa’
The Chernobyl reactor site in the Soviet Ukraine is on the northern edge of an important farming region that produces about a quarter of the Soviet Union’s grain, as well as much of its sugar beets and meat.
“It’s the Iowa of the Soviet Union,” one expert said.
If Soviet crop production is hurt, it could be good economic news for American farmers beleaguered by a worldwide grain glut, depressed exports and prices. U.S. grain sales to the Soviet Union and other East Bloc nations--which this year had been expected to be nearly half last year’s--could recover somewhat. However, partly because of political reasons, it is not clear how much the sales would increase. The Soviet Union, the world’s largest importer of grain, has in recent years bought more of its grain from non-U.S. sources.
But the nuclear disaster could be a blow to a recovering Soviet agricultural system and the economic policies of Soviet leader Mikhail S. Gorbachev. The Soviet harvest this year was expected to be one of the best in years, after generally lackluster harvests and bad weather for much of the past decade. The higher production was expected to cut Soviet imports of grain worldwide by as much as 40%. Gorbachev and other Soviet leaders also had hoped to upgrade the Soviet diet by producing more meat.
Other Nations in Peril
The nuclear disaster could also hurt production of dairy products and pork in Scandinavian and Eastern European nations, where increased levels of radiation have been detected. Denmark, for example, supplies 20% of the world’s pork exports. Poland is a major supplier of ham and other pork products to other East Bloc nations.
However, analysts stressed that it is still very uncertain how much damage, if any, the reactor accident could cause to Soviet or European food production. There is a basic lack of information about the extent of the fallout and lack of scientific knowledge about the impact of radiation on crops, they said.
Winds blowing the clouds of radioactive gases shifted Tuesday in a southeasterly direction, after initially blowing toward the northwest and away from the crop region, and Soviet crops seemed to be in greater jeopardy.
“But we don’t have a lot of experience with this kind of thing,” analyst Urbanchuk said. “There have been nuclear accidents in the past, but nothing of this scale and not in an agricultural area.”
Contamination Could Linger
It also is not clear how badly the fallout will contaminate Soviet water supplies and soil. Such contamination might not affect current crops--the winter wheat crop is scheduled to be harvested within the next two months--but could harm growing conditions “for a number of years,” said William O’Neill, research director for Rudolf Wolff Futures Inc., a New York commodities brokerage.
Agriculture Department spokesman John McClung said it would be “irresponsible” to speculate now about the extent of Soviet crop damage because of the lack of information. But he did say that chances are “minimal” at best that U.S. crop production would be affected by any nuclear fallout from the Soviet plant. He also said stringent inspections would seek to prevent contaminated food from overseas from reaching American consumers.
Since the 1980 Soviet grain embargo imposed by President Jimmy Carter, the Soviet Union has increasingly turned to other nations, such as Argentina, Canada, Australia and the European Communities, for the grain it buys overseas.
In addition, the United States does not grant the Soviet Union most-favored-nation status in trade, meaning that the Soviets must pay higher prices for U.S. products and cannot get trade financing directly from U.S. agencies.
Before the Chernobyl disaster, the Agriculture Department had forecast that U.S. grain sales to the Soviet Union would fall to $1.5 billion in the current fiscal year from $2.5 billion in the previous fiscal year.
Domino Effect
But even if the Soviets do not buy much additional U.S. grain, their purchases from other nations will boost world prices and that will benefit U.S. farmers, noted Conrad Leslie, an analyst for E.F. Hutton in Chicago.
In Chicago Board of Trade trading Wednesday, wheat futures contract prices closed up 20 cents a bushel--the daily maximum for price increases--with the May contract closing at $3.28 a bushel. Corn futures rose between 7.25 cents and 10 cents, with the May contract closing at $2.3825 a bushel.
Most livestock and meat futures contracts advanced the daily limit on the Chicago Mercantile Exchange.
Live cattle futures rose between 0.95 cent and 1.50 cents, with the June contract closing at 57.20 cents a pound. Live hog futures rose between 0.07 cent and 1.20 cents higher with the June contract closing at 46.60 cents a pound.
