Power has been restored to eight of the 10 grain export elevators in the New Orleans area, which is excellent news for the export-dependent U.S. farm industry.
Elevator facilities in the area sustained relatively minor physical damage from the hurricane, but the movement of grain and other commodities through the region still was compromised. For barge-dependent terminal elevators up and down the Mississippi River, that's meant a quick change in standard operating procedure ... and new strategies for storing and moving grain.
Nancy Crowfoot was on the river this week to learn more.
This week along the Mississippi River in southern Iowa and central Illinois, barges were being loaded with grain & and traffic was moving downstream. It looks like a typical day of river activity, but business on the river was anything but "usual".
Looking at photos on a Web site, of barges and other vessels run aground in the gulf coast, tells this elevator manager there will definitely be a ripple affect from hurricane Katrina three states north at his elevator along the Mississippi river in Wever, Iowa.
Nick Huston, Colusa Elevator, Wever, Iowa: "the hurricane came in late on a Monday. Tuesday we could see significant damage done, and so Wednesday, we started to move corn by truck to processor locally, which is not typical movement."
Nick Huston is a branch manager of an elevator that specializes in loading barges, not trucks. But since Hurricane Katrina hit the gulf, wreaking havoc with barge traffic, his operation -- and another elevator 50 miles south on the Illinois side of the river & have had to come up with scenarios to handle their stored carryover from last year's bumper crop ... and make room for the new crop, that already is being harvested in central Illinois.
Gerald Jenkins, Ursa Farmers Cooperative, Ursa, Illinois: "This company is 85 years old. I've been here 32 years and we've never put grain on the ground. But we actually are considering it this year--only if we can't get barges in the latter half of harvest."
Gerald Jenkins already is seeing this year's corn harvest moving to his river terminal ... as are states further south &that also ship by barge.
While some alternatives, such as rail and trucking, may be short-term solutions to meet the immediate needs of individual shippers & most in the industry agree the alternatives are not a permanent solution.
Terry Francl, Senior Economist, American Farm Bureau Federation, Washington, DC: "New Orleans is the primary option because, number one, the location. It's closer to where we produce the grains and oil seeds, cotton, etc. The other thing is they have the physical capacity. There are I believe nine or ten grain terminals down there. They're set up to handle the business, to handle it, expedite it."
The crisis is in the process of being averted. While many terminals are reported to be in "stages of disrepair", some are partially operational.
By midweek, two-way traffic for grain from the Gulf was restored -- but with several restrictions. As of Friday, the Mississippi had not returned to pre-storm status. But even with some movement returning to the river, there is concern over whether shippers can obtain the barges they need. There were initial reports of hundreds of barges unaccounted for since the storm & and while those idled upriver may be moving again, they are behind schedule.
And late this week, Reuters reported that one barge company declared force majeure, meaning it is unable to meet its obligations to deliver barges to customers.
Nick Huston, Colussa Elevator, Wever, Iowa: "We're fairly sure of our next two weeks supply. But after that we have no idea whatsoever. Definitely with the uncertainty in the barge trade, we're going to have a hard time telling anybody anything more than 2 to 3 days in advance."
Users place bids to reserve the barges they need & with the vessels going to the highest bidder. With the uncertainty of availability, bids are flying high and fast.
Nick Huston, Colusa elevator, Wever, Iowa: "Memphis freight traded at 900%, 9 times the price they would get if it came here."
Gerald Jenkins, Ursa Farmers Cooperative, Ursa, Illinois: "Historically it would probably cost 35 to 40 cents to get the grain from West Central Ilinois to the gulf. What with high oil prices it pushed the price to 45 to 50 cents. Yesterday we booked 6 barges. The barges cost 80 cents bushel, twice what the normal was."
This increased cost for barges -- on top of high fuel costs which affected the grain price even before the hurricane -- will be passed on to farmers if they are in the cash market. On Wednesday, the cash price at the Ursa elevator was $1.81 a bushel.
Gerald Jenkins, general manager, Ursa Farmers Cooperative, Ursa, Illinois: "If it weren't for the increased freight we'd be at $2.00 or $2.05. It's taken 25 cents off the top of the market since the devastation in the gulf."
All along the river, prices have dipped, reports a company that tracks daily bid prices in 2,000 markets. Last week, Cash Grain Bids, Inc. reported a 10 to 15 cent drop in basis along the river. This week, company president Kevin McNew says ... more markets are affected.
Kevin McNew, President, Cash Grain Bids, Inc. "In the days following Katrina we saw an immediate impact along the river 10 to 15 cents a bushel drop in corn and soybean prices. That sort of stabilized but now a week and a half later, we've seen those impacts spread out around the country and move beyond just the river terminal markets. And so farmers within several hundred miles of the river are starting to feel the impact of these grain prices falling."
McNew says with fallout from Katrina and the upcoming harvest, farmers should expect to see low prices continue for the next 4 to 6 weeks.
Gerald Jenkins, Ursa Farmers Cooperative, Ursa, Illinois: "Historically we see 50% of the crop as sold coming out of the field. This year, I wouldn't expect to see more than 20 or 25% sold simply because of the wider basis and the low price created by this disaster."
Jenkins is confident the basis price eventually will correct itself. The hope is, the river, and the shipping industry, too, will recover. With more than half of U.S. agricultural exports going to the gulf. Itsimply has to, or else.
Terry Francl, Senior Economist, Am Farm Bureau Federation, Washington, DC "What we would witness is a loss of our market share of our exports because we do have competitors in nearly all these products that are more than willing to step in and pick up the slack."
Since two-way traffic for grain resumed by mid-week, Francl is confident his worse case scenario will not become a reality.
To add further confidence of a comeback, USDA reported late this week that 63% of grain elevator capacity at the gulf has been restored. In addition, USDA reported that federal grain inspectors are back to work at six of the gulf port elevators.
For Market To Market, I'm Nancy Crowfoot.