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Low rivers may hamper grain movement

The drought that smoked through crop yield potential this year is still top-of-mind for anyone near the nation's biggest river system, especially along the Missouri River from the Dakotas to the confluence with the Mississippi River.

River levels are way down from normal; for the month of August, for example, runoff into the Missouri River basin north of Sioux City, Iowa, was 1/4 of normal and more than 60% lower than in 2011. More than 3 times the amount of water flowed into the river system last year than in 2012, according to the Army Corps of Engineers (ACE).

This week, ACE officials are taking the first of a series of steps they hope -- with a lot of help from Mother Nature -- will allow the river system to "catch up" and prevent navigation issues that could influence grain prices fairly quickly. Starting Monday -- well ahead of normal -- ACE will slow water release out of the Gavins Point Dam in Yankton, South Dakota, to its minimum winter output levels. By the time those levels can be bumped up again, officials hope they've, with a little help, made a dent in the river water shortage.

"Our forecast indicates that we will likely begin the 2013 runoff season about 8 [million acre feet] below the base of the annual flood control and multiple use zone," says ACE Missouri River Basin Water Management Division chief Jody Farhat. "We will be paying close attention to the amount of mountain snowpack we receive in Montana and Wyoming, as well as the plains snow accumulation in the Dakotas, this winter."

Marketing implications

The actions on the Missouri River will be critical to restoring more normal water levels in not just that river, but downstream into the Mississippi, where navigation -- and the movement of grain to the Gulf of Mexico -- is already being disrupted. But, ACE's immediate actions to trim water flow into the river from upstream reservoirs could actually further endanger barge traffic in the near term, says Allendale, Inc., grain analyst Jim McCormick.

"The shipping industry is fearful that with less water flowing into the river system shipping delays and possibly halts could happen," he says. "The Coast Guard said that they are committed to keep the water ways open but acknowledged that the low water may restrict drafts and tow sizes."

A key date for grain movement on the river system is coming up in a couple of weeks. Federal officials have forecasted December 10 as the day when water levels drop below 9 feet, at which point river transportation will effectively be shut down. The critical stretch of river between St. Louis and Cairo, Illinois, is one that many grain traders and merchandisers are watching closely.

"Low water is threatening to shut barge traffic below St. Louis, and that could hamper winter exports for old-crop [corn and soybeans]," says one CME Group floor trader.

The immediate impact of the river system's closure to barge traffic will come in cash grain basis levels at river terminals, which could ultimately weigh on the futures market if the interruption lasts for an extended period, says Cargill Senior Grain Merchandiser Ray Jenkins. It could pressure delivery points away from the river to keep basis values high enough to keep the grain flowing to end-users, something that likely won't change prices as much as it could, considering the number of delivery points around the country because of the ethanol industry.

"This has the potential to impact barge traffic, but also could affect the delivery system for grains," Jenkins says. "If this were 10 years ago, and prior to the growth of the ethanol industry which currently keeps a lot of corn from getting to the river -- well, we would be talking about some major league re-arrangement of basis values."

If you're concerned about what the river situation could mean to your cash grain or futures marketing options, Jenkins has this simple advice: Just stay in the loop. "There are a lot of ways this could play out, so best to stay tuned and be aware of the effect on the markets where you sell your corn and beans," he says.

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