Low water on Mississippi hits grain prices at the farm gate
Farmers in the Midwest and the mid-South are paying the price for low water on the Mississippi River in the form of lower cash bids for their corn and soybeans — as much as $2 a bushel lower for soybeans, said USDA economists on Wednesday. At the same time, the cost of transporting fertilizer upriver has increased, and neither situation is likely to change before late winter.
Barge companies are charging more to transport cargo on the lower Mississippi because their towboats can move fewer barges at a time and because those barges cannot be loaded as fully. The additional cost is being passed along to growers, said four USDA economists, writing on the farmdoc daily blog. Grain tonnage on the lower Mississippi during September and October was down by more than 40% from recent years.
Ordinarily, inland bids for soybeans on the cash market would be $1 lower than the price at export terminals near New Orleans at this time of the year, the so-called basis between locations. Basis typically widens in August and September.
“However, this decline was much sharper than usual — a swing of approximately $2 per bushel in interior basis and coinciding with the disruption along the river and surging barge rates,” said the group, which included USDA chief economist Seth Meyer. “Farmers, particularly those within the draw of the Mississippi River, are likely to continue to face lower grain cash bids and higher fertilizer prices in the near term that would be expected to be erased by no later than early spring.”
The soybean basis, which reached a record $3 a bushel in late summer, has subsided recently to $2.25. The basis for corn was around $2 a bushel. More than four of every 10 bushels of the soybean crop are exported, compared to one of every six bushels of corn. The peak time for soybean exports runs from the fall harvest through January, before the South American crop comes to market.
Fertilizer prices also diverged during low water.
“Similar to grains, we have seen an emerging disconnect in prices interior and the Gulf, with higher prices upriver relative to downriver,” said the blog, citing price movements in diammonium phosphate (DAP), monoammonium phosphate (MAP), and urea fertilizers. “This widening price premium suggests farmers may be paying $50 more per tonne than what they would have been paying before the barge disruption issue.”
While most nitrogen fertilizer is imported during the spring, a sizable portion of imported MAP and DAP is needed in the fall.
The Mississippi River typically reaches its lowest levels each October, rises through the winter, and rises significantly in the spring with snowmelt and rainfall. Low water can persist into winter, but “in the absolute worst case, the river will certainly have to rise by March,” said the economists.
“However, this may provide little comfort to farmers, particularly soybean producers, as spring will be the time Brazil starts ramping up its soybean exports; further, even when the rivers rise, the backlog in shipping may take some time to unwind.”