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MARKETS THE WESTERN PRODUCER | WWW.PRODUCER.COM | DECEMBER 13, 2012
Low Mississippi water threatens ag shipments
Grain, fertilizer exports hindered | Shipping disruptions are affecting commodity markets
BY SEAN PRATT
SASKATOON NEWSROOM
Grain prices are falling and will
drop further if the U.S. government
doesn’t move quickly to boost water
levels in the Mississippi River, say
concerned agricultural commodity
shippers.
They claim a 320 kilometre stretch
of America’s most important transportation
artery between St. Louis,
Missouri, and Cairo, Illinois, will be
shut down as early as Dec. 24 if nothing
is done to rectify the problem
caused by a severe summer drought
in the United States.
“That would impede the southbound
movement of grains and
oilseeds,” said Randy Gordon, president
of the National Grain and Feed
Association.
“There just wouldn’t be an ability to
move them south of St. Louis other
than by rail and truck, which are both
pretty inefficient.”
While little if any Canadian grain
moves on the Mississippi, prices here
could be affected because of the critical
role the river plays in transportation
in the world’s leading grain
exporter.
About 60 percent of the United
States’ corn and soybean exports
travel south by barge on the Mississippi
to New Orleans, where they are
then shipped around the world. Most
of that product would normally find
its way down the river system during
the next few months.
The river is also used to bring fertilizer
north from New Orleans into the
northern U.S. Plains and Western
Canada.
The volume of fertilizer that typically
moves on the river system in
January and February can account
for 30 to 60 percent of the fertilizer
used in the northern U.S., so those
prices could be rising, said Gordon.
The National Grain and Feed Association
and 20 other agricultural and
waterway organizations have sent a
letter to U.S. president Barack Obama
requesting him to direct the U.S.
Army Corps of Engineers to release
enough water from the Missouri
River reservoirs to maintain a ninefoot
navigation channel on the Mississippi
River.
They say about 300 million bushels
of grain and oilseeds worth $2.3 billion
will be delayed getting to market
in December and January if
confidence and push prices lower
across all markets.
Weather will also play a role.
There has been a string of weather
problems for the past year, from winterkill
and spring drought in Russia to
an historic drought in the U.S. Midwest
to excessive rain recently in
Argentina.
However, all crop prices would be
pressured lower if weather in critical
growing regions shifted toward a
more benign trend.
“I can’t reiterate this enough,”
Strychar said.
“Prices this high make buyers and
speculators nervous. The first opportunity
to see decent weather in the
northern hemisphere, I can just
about guarantee you are going to see
this market easing if not starting to
Barge operators are already reducing load weights to avoid running aground in the drought-lowered
Mississippi. | U.S. COAST GUARD PHOTO
Reduced supplies in export
positions would pressure farm
prices and erode the United
States’ ability and reputation as
a reliable supplier of agricultural
products to serve foreign
buyers.
U.S. AGRICULTURAL GROUPS
nothing is done.
“Reduced supplies in export positions
would pressure farm prices and
erode the United States’ ability and
reputation as a reliable supplier of
agricultural products to serve foreign
buyers,” the groups said in the letter.
The American Waterways Operators
called the situation an “economic
disaster.”
“U.S. agricultural export projections
are already plummeting as the
anticipated absence of cost-effective
barge transportation prices American
corn and soybeans out of the
international market,” AWO presi-
— you have to use the word plunging
carefully — but they are going to start
to move lower.”
He thinks U.S. corn production will
jump higher next year, leading to
lower prices that would also pressure
oats.
However, he said he can’t ignore
the fact that there is a wide divergence
in corn price forecasts, with
some analysts expecting prices of $8
per bu. or more by next summer.
Oats would likely be $3.80-$4 per
bu. if corn reached $8 and reach
$5.50 if weather scares pushed corn
to $8-$10.
“That is just a stunning number. I
can’t fathom that happening,”
Strychar said. “You’d have to have just
week after week after week of bullish
(weather) news for that to happen.”
dent Tom Allegretti said in a news
release.
Reuters reports that assistant army
secretary Jo-Ellen Darcy, who is in
charge of the Army Corps of Engineers,
said the Missouri reservoirs
are already 20 percent lower than
desired and that the requested
release of water wouldn’t be enough
to maintain navigation on the Mississippi.
Darcy said the combination of
dredging and forecasted rain will
keep barges moving on the river
through mid- to late-December.
However, commodity shippers are
already cancelling sales, rerouting
cargo and light-loading or pulling
barges in an effort to deal with
reduced water levels and in anticipation
of the closure of a portion of the
river.
“Exports are being curtailed. Contracts
are being cancelled,” said
Debra Colbert, senior vice-president
of Waterways Council Inc., which
represents shippers, carriers and
ports.
Switching to truck and rail is a costly
proposition, and these alternatives
cannot handle the volume that
moves on the river. A dry bulk barge
can haul 1,750 tonnes of grain,
oilseeds or fertilizer compared to 110
tonnes in a bulk rail car and 25 tonnes
in a truck trailer.
“The waterways really provide the
most economical, cost competitive
way to move agricultural products,”
said Colbert.
The shipping disruptions are
already affecting commodity markets,
said Jamie Wilton, senior commodity
futures specialist with ScotiaMcLeod
in Winnipeg.
“It’s bearish futures. It’s almost a
form of rationing demand,” he said.
Rising freight costs are inflating
basis levels, which is reducing
futures prices, particularly for corn
and wheat, although Wilton thinks
it’s only a matter of time before soybeans
feel the impact.
“It has been limiting some of the
gains here recently and maybe even
caused some of the sell-off today
here again,” he said Dec. 7.
“I think it will probably get worse.”
Wilton said the higher cost of getting
U.S. commodities to market
could make Canadian grain and
oilseeds more competitive.
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7
“It may push some extra demand
towards canola or Canadian milling
wheat,” he said.
The river problems could push
more U.S. grain to the West Coast, but
there are problems there, too, in the
form of labour contract disputes at
ports in the Pacific Northwest.
Gordon said longshoremen in
Portland are involved in labour
negotiations that aren’t going well.
The dispute could affect six grain
terminals in Portland, Vancouver
and Puget Sound if it escalates into a
full-fledged work stoppage.
He said the Mississippi River issue
has escalated to “a pretty high level”
in the White House, but there is
plenty of opposition to the request to
open the taps on the Missouri River
reservoirs.
Members of Congress from the
northern Plains say water from the
Missouri River is used for industry,
irrigation and wildlife in their
states.
The U.S. Army Corps of Engineers
typically starts gradually
restricting flows from the Missouri
during the winter starting in
November and then shuts the taps
off in December.
“Essentially, what we’re talking
about is that water levels could drop
a foot a week for at least the next
couple of weeks,” said Colbert.
She said keeping the Missouri River
reservoirs open would deplete them
by only two or three percent, which
would be paid back in the spring
through reduced flows if they haven’t
been replenished by rainfall. The
Corps said it would be more like a five
percent reduction in the already low
reserves.
“The Corps has absolutely dug in its
heels and said that it will not release
water,” said Colbert.
The original estimate was that the
stretch of the Mississippi between St.
Louis and Cairo would become
unnavigable by Dec. 10. The new
estimate is Dec. 24, although the latest
data shows it could be as late as
Dec. 28.