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Grain transportation bottlenecks and prices

DANIEL LOOKER Updated: 11/06/2013 @ 2:03pm Business Editor

Poor transportation costs you. Grain shipping charges are normally built into the cash basis buyers pay for your soybeans, corn, and other grains. Though, for at least a year, little about U.S. commodity transportation has seemed normal.

In last spring’s high water, barges broke loose from a tow, damaging and temporarily closing the Marseilles Lock and Dam on the Illinois River. By early summer, Mississippi River locks in Illinois, Iowa, and northern Missouri shut down until water levels fell enough for safe passage. By the end of a dry August, the Army Corps of Engineers was dredging in low Mississippi water near Clinton, Iowa.

Other transportation issues lie ahead. To the north and west, a wet spring has delayed completion of rail improvements in North Dakota, which could cause temporary shipping delays this fall. In Washington state, a lingering labor dispute could challenge exports to Asia.

These and other potential bottlenecks worry Larry Hasheider, who farms near Okawville, Illinois, about 40 miles east of St. Louis and the Mississippi River.

Hasheider’s farm is only 2 miles from an elevator that ships corn to southeastern livestock markets on unit trains. Still, transportation problems on the Mississippi River affect him, too.

“If the rail didn’t have to compete with the river, I’d have a lower price, too,” says Hasheider, who is chairman of the Illinois Corn Marketing Board. “Whenever the river backs off, the rail backs off.”

That’s exactly what happened last winter, when the Mississippi was so low that the Army Corps of Engineers had to hire two contractors to blast rock pinnacles in the channel near Thebes, Illinois. Barges were already running partially loaded in the shallow water between St. Louis and the confluence with the Ohio River at Cairo, Illinois. Then, beginning on December 15, 60 days of work to clear the channel began, limiting barge traffic to eight hours each night. For the first time ever, some shippers moved grain to the Gulf Coast by rail – at a cost of 45¢ a bushel for corn, according to a study conducted by Informa Economics for the Illinois Corn Marketing Board and the Illinois Corn Growers Association.

That hit to cash prices might not have seemed huge, since December corn futures had spiked above $8 a bushel in July and were still around $7. The basis at Pekin and Peoria, Illinois, had briefly gone more than $1 over nearby futures in June last year, falling to almost even with futures by mid-December.

“If that had been a lock failure, that’s what would have been a real-world event to farmers,” Hasheider says. “It’s one thing to have 45¢ on $7 corn and another thing to have a 45¢ lower basis on $4 corn.”

Commodity groups and checkoffs have been working for years to get Depression-era locks and dams repaired and modernized – with only mixed success. After last year’s short crop and this year’s drought-shrunken carryover, the transportation system seems ready to revert to more normal patterns. Last year’s Mississippi River delays prompted farmers to store corn or sell to buyers other than river terminals. Hasheider and other farm leaders worry about the effect of a lock failure.

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