By Andi Anderson
Recent supply chain disruptions have thrown grain markets into turmoil, particularly impacting the Southeastern region. The core issue revolves around the Lower Mississippi River's historically low water levels, which have far-reaching consequences on transportation costs and crop prices. This predicament offers a unique perspective, drawing parallels with the disruptions seen in the beef processing industry during the pandemic.
The Lower Mississippi River's water levels have plunged to historic lows, as illustrated by the U.S. Geological Survey monitoring station in Memphis, Tennessee. These measurements, particularly the Gage height, a relative indicator of water levels, reveal alarming figures. The river's level currently stands at -11.80 feet in Memphis, perilously close to the -12 feet threshold where measurements become unreliable.
The ramifications of low water levels are significant. Grain transportation by barge, a vital mode of shipment for many farms, becomes increasingly costly. Eventually, it can even become unsafe, leading to a complete halt in barge traffic. This escalation in transportation expenses prompts grain elevators to bid grain prices lower.
In extreme cases where the river is closed to barge traffic and storage capacity is exhausted, some grain elevators may cease purchasing grain. This situation is particularly troublesome for states like Arkansas, where a substantial portion of soybeans is destined for export markets via barge. The graph reflecting new crop basis (cash minus November futures) for Arkansas soybeans tells the story of this impact.
Low water levels also bring the issue of storage capacity to the forefront. When the Mississippi River experiences these challenges, the incentive to store grain surges. However, if storage facilities are operating at full capacity, grain bids will naturally decrease, reflecting a drop in derived demand. The problem intensifies because most grain elevators lack excess capacity to absorb this shock. Consequently, grain bids decline across the board.
Transportation and diverting grain to alternative markets present another challenge. Shifting to different modes of transportation, including trucks and rail, is a viable solution. Yet, it comes at an additional cost, which subsequently leads to lower grain prices. The more grain diverts to these alternative markets, the more pronounced the decline in prices within the river market. This approach's success depends on whether alternative transportation methods possess the capacity to manage significant quantities diverted from the Mississippi River.
The parallels between the current grain market disruption and the beef industry's challenges in recent years are evident. The critical commonality is the concept of capacity. For beef, it was processing capacity; for grain, it is storage capacity. Moreover, the conversation expands to processing, especially concerning crush facilities. As we delve into this topic during this year's Winter Production meetings, it is clear that capacity remains a linchpin in the stability of our agricultural supply chains.
Photo Credit: gettyimages-giovanni1232
Categories: Ohio, Business