The Grain Hedge Team provides a macro-focused daily view of the world’s grain markets. Kevin McNew received a bachelor’s degree from Oklahoma State University and his master’s and Ph.D. degrees in Economics from North Carolina State University. He spent 10 years as a Professor of Economics with the University of Maryland and Montana State University focusing on commodity markets and is widely regarded for his ability to boil-down complex economic situations into easy-to-understand concepts for applied life.
Bottlenecks and Higher Barge Rates Sink Grain Basis
Jun 17, 2008
Bulls returned in full force to the grain markets this week. The market continues to bet on yield/acreage losses as prolonged flooding could impact 2008 production. But in the near-term, flooding is also sinking cash grain markets as freight bottlenecks and higher costs puts grain movements on hold and has caused basis markets to weaken.
Burlington Northern Santa Fe said flooding has caused major delays along three routes, and normal traffic won't resume until rivers crest. The disrupted routes run east-west through Ottumwa, Iowa, along the Des Moines River, north-south from St. Louis to Burlington, Iowa, and north-south from St. Louis and Memphis, Tennessee, along the Mississippi River.
In addition, barge rates have catapulted higher as well. Over the last week, barge rates along the Illinois and Mississippi River regions are up 8 cents a bushel while rates on the Ohio River jumped 18 cents a bushel.
Corn basis levels were noticeably lower as average basis bids across the country fell 5 cents a bushel. Losses of 10 cents a bushel were fairly common over the past week along key river terminals. Western Plains regions, however, have been mostly immune to weaker basis as has the Eastern Seaboard, where dry conditions continue to persist.
For soybeans, basis levels were not as weak as corn over the last week. Losses of 3 cents were the norm in the bean market, but areas impacted by higher barge rates were 10 cents or more weaker over this past week.
With the brunt of the flooding issues still in front of us, basis levels should continue to come under pressure. However, end-user processors will likely be running short of supplies with limited grain movement so we would expect basis movements to move higher once flooding issues abate. For new-crop delivery, basis levels have come under pressure with new highs being set in December futures and taking basis-only positions given crop uncertainties seems unwise at this point.