Farmers and merchandisers in areas impacted by flooding were restricted in moving grain on the Inland Mississippi River Waterway System during March and April. Those restrictions persist. Approximately 60% of all grain inspected is exported through the ports at New Orleans, Louisiana, and Mobile, Alabama.
Upper Mississippi River opening delayed
The pain is much worse for farmers located on the upper Mississippi River (above St. Louis) than for farmers in other regions. This stretch is closed in the first week of December and typically reopens in the second or third week of March. But the reopening of the upper Mississippi River has been delayed by flooding this year. No corn or soybeans have locked through Lock and Dam 15 (Rock Island, Illinois) since last December.
Barge companies are now trying to arrange freight for the third week in May, assuming the flooding subsides. The extended closure has effectively shut off the export market to many farmers for an additional two months.
Without the river option, a farmer’s marketing options are to truck crops to a river elevator below Lock and Dam 15, rail the crops to the Pacific Northwest or Gulf, sell to local operations or keep the crops in storage.
Alternatives are not as good as advertised
Trucking crops is expensive, and as the closest river elevator below Lock and Dam 15 quickly books up, the trip to the next river elevator becomes longer and more expensive. The text books will say to just switch to the next least expensive transportation mode. The reality is besides track capacity and locomotive constraints, railroads plan labor utilization by export forecasts and assume the river will be open. The rail system cannot handle the volume that is barged without extensive planning and investment. During the low-water event of 2012, railroads indicated that major operational decisions with long-term implications were not going to be made based on an outlier year.
The captured supply of corn and soybeans should have local feeding operations, ethanol plants and crushing plants in great financial shape to buy, but these operations have limited storage. Farmers must wait until the upper Mississippi River reopens to transport their crops. A trade deal with China could make exporting crops in the traditional low time period of late May and June much easier — but a China trade deal is still in question.
Over 40 days of continual flooding
Water levels at Lock and Dam 15 have been above the flood level of 15 feet since mid-March. The average water level for March was the third highest since 1970. The Army Corps of Engineers said Lock and Dam 15 crested at 22.7 feet — for now. There have been over 40 days of continual flooding and the flood stage late last week bested the previous record high of 22.6 feet on July 9, 1993.
This year is different than 1993
In 1993, the water did not rise above the flood stage until April, which allowed some crops to flow downstream before the upper Mississippi River was shut. There is no reason to suspect the summer of 2019 will be as bad as 1993, but May is definitely going to remain a challenge for farmers and grain merchandisers in the area.
The heavy, wet snow that fell across the upper Midwest adds to the amount of water that must move down river.
Flooding shows need for infrastructure investment
Although weather events are unavoidable, their impacts can be minimized with proper maintenance of the waterways. Proper maintenance includes funds for dredging, dike building, flood control, lock repairs, wetland creation and more. So far, the flood damage along the upper Mississippi River has been less this year than in 1993, when multiple levees collapsed.
Due to the flooding, the U.S. Coast Guard has reduced barge tow configurations from St. Louis to the Gulf, which reduces tonnage per tow. That, in turn, increases the number of round trips needed to fill export orders and ultimately results in higher barge costs. Flood conditions also increase turnaround times for shippers and increase the odds of demurrage fees.
Impacts on basis, export prices
When comparing Iowa river corn and soybean prices to Gulf values, the spreads have not reacted to the upper Mississippi River being closed. The lack of barge volume is offsetting the impact of barge capacity constraints. The forward three-month barge rate indicates shipping costs will remain slightly above the three-year average rate into summer. If crops need to be transported, the resulting increase in transportation cost will cause country buyers to widen basis and exporters to increase FOB rates.