Watch Oil Spill News for Grain Shifts

June 19, 2010 08:43 AM
 

It’s a “watch and wait” situation regarding the impacts of the BP oil spill in the Gulf of Mexico on grain shipments and local basis, according to analysts. More than half of U.S. grains and oilseeds ship through the Gulf, where a ruptured well has been spewing more than 30,000 barrels of oil each day for nearly two months.

To date there has been no evidence of major price fluctuations or any problems exporting grains resulting from the oil spill, according to John Cripe, director of Mid-Co Commodities, Inc., the price risk management subsidiary of GROWMARK that provides market information and futures and options advice to farmers and elevators in the Midwest. However, Cripe says ships exporting through the oil slicks in the Gulf of Mexico could eventually require cleaning due to oil build up on their hulls, adding to up-keep costs and possibly affecting grain prices over time.  

While current reports indicate there are precautions in place to remove oil from any affected vessels, past experience has shown that delays in traffic have had a drastic economic impact on regions beyond the Gulf of Mexico, according to Congressmen Bruce Braley (D-Iowa), who sent a recent letter to President Barack Obama urging him to fully evaluate the impact of the BP oil spill on Mississippi River shipping lanes.

“Following Hurricane Katrina in 2005, the agricultural industry suffered sharp declines in the prices of commodities as a result of a traffic slowdown,” the letter stated. “Access to the Mississippi is crucial….to the agricultural industry who depends on barge shipping to get their products to the rest of the world at competitive costs." Braley and Phil Hare (D-Ill.) are requesting that the Obama Administration perform a full analysis on the potential economic impact that the spill could have on barge traffic along the Mississippi River.

“After Katrina, the rivers shut down and we saw effects on grain prices, but they didn’t last very long,” says Scott Brown, University of Missouri Food and Agricultural Policy Research Institute economist. “If we’re talking about this oil spill affecting grain or barge traffic for months, this will have a much larger effect than if we’re just talking about a week or two of curtailment.”

Active hurricane season adds worry. Along with watching Midwest grain exports, analysts are also keeping an eye on the horizon for hurricanes. The National Oceanic and Atmospheric Administration (NOAA) last month predicted an “active to extremely active” hurricane season this summer.

“If the upcoming hurricane season is as bad as predicted, then the hurricanes will push the oil slicks up through the Mississippi River into the Delta region. We do a lot of irrigating with water from the marshes of the Mississippi River down in the south Delta regions,” Cripe says.

Overall, crop prices near-term could remain in a tug-of-war as strong demand is being tempered by predictions of high yields due to the favorable start to the growing season, according to Darrell Good, University of Illinois economist.

Fishing industry on edge. As the spill spreads, fertile fishing grounds in the Gulf of Mexico are starting to become limited due to environmental concerns related to the BP oil spill.

On Monday, June 14, Florida temporarily closed off approximately 23 miles of coastal state waters offshore of Escambia County to the harvest of saltwater fish, crabs and shrimp. NOAA has already restricted fishing in federal waters affected by the spill.

The impact on seafood prices for the American consumer could be minimal due to the fact the U.S. imports about 83% of its seafood. But a portion of seafood prices will be forced to rise, according to Brown. “We certainly will see higher seafood prices, but for Midwest agriculture that may mean consumers will turn to beef, pork and chicken instead,” Brown said.

Brown cautions that at this point it’s hard to tell what the long-term effect of the oil spill will be. “Figuring out how the oil will spread and whether it will get in the shipping lanes seems to be important in determining the effects,” he says. “Until then it’s far too early in the game to know the larger impact on consumers.”

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