Low River Levels Cause Disruption to the Ag Supply Chain

The drought in the Midwest has caused historic low river levels. In the St. Louis area, the Mississippi River was nearly six feet from its record low and more than 40 feet below its peak height during flooding in recent years.

The declining water levels and now falling temperatures continue to impact barge loads, freight rates and U.S. export activity. Dan Patterson, Director of Barge Freight at ARTCo, a subsidiary division of ADM, recently shared his insights about the situation, what it means for the transportation of inputs and the outlook as winter appears. Below is a recap of his key points:

Q: What is ARTCo and how does it fit into the overall river transportation industry?

A: American River Transportation Company (ARTCo) is an integrated inland river system that’s owned by ADM. We offer one of the largest covered hopper barge fleets in North America and our numbers help tell our story:

• 3rd largest barge line
• 1,800 barges
• 29 line boats
• 100 tank barges
• 1,500 employees

There are about 12,000 covered hopper barges total that haul grain and fertilizer. ARTCo makes up about 15% of the market, with the third largest barge line. Our primary focus is hauling grain to the Gulf of Mexico, but we also handle fertilizer, salt and steel.

Q: How has the size of the barge market changed in recent years?

A: The barge market was up to 13,000 barges in North America just a few years ago. With the rise in scrapping prices and general wear and tear over time, many barges are now inoperable. Five years ago, the cost to purchase a new barge was about $600,000, while today it’s up to nearly $1 million. The high price tag is preventing the construction of new barges and capping the overall inventory.

Q: What other factors are impacting the barge market?

A: The tighter inventory of barges and low water levels has put pressure on the entire river transportation system. Normal river heights are 15-20 feet and the Mississippi River is around 6-7 feet in the Memphis area right now. As a result, grain, fertilizer and other inputs aren’t moving as fast, considering these numbers:

• 70,000 bushels are typically transported per barge
• 50,000 bushels are being transported per barge right now
• 42 barges are a full tow
• 25 barges are only being towed right now

Q: What are typical barge freight rates this time of year?

A: Freight rates were substantially higher this fall. At one point, there was a $4 rate point in St. Louis and costing as much as $120 per ton to transport a load of grain from St. Louis to the Gulf of Mexico by barge.

Q: How has this affected basis prices at river terminal elevators?

A: The low water levels and higher freight rates have impacted basis levels at river terminal elevators over the last few weeks. At one point, the basis was $1.50/bushel below average in a few places along the Ohio River. Earlier this month, economists at the University of Minnesota Extension noted the basis for corn at a loading facility south of the Twin Cities on the Mississippi River was a quarter below southwest Minnesota, which is usually the reverse.

Q: What does this mean for late fall fertilizer deliveries?

A: Fertilizer supplies have also been impacted, especially at terminals in Dubuque, Iowa; Winona, Minnesota; and Minneapolis. This fall, we lost a week in Louisiana and another week in Arkansas due to water levels. It’s been slow getting barges to northern areas to move fertilizer, and now it’s getting even more difficult with the dropping temperatures.

Q: When do you stop operating barges for the season?

A: We will pull barges from the Minneapolis area around Thanksgiving and then in Clinton, Iowa, soon after and work our way down the river. We’d like to run barges all year, but with the low levels, the water is going to freeze quicker than normal. Unfortunately, the U.S. export outlook is unfavorable right now due to our current circumstances.

Looking Ahead

While the strain on the river transportation system is impacting delivery schedules, grain prices, fertilizer supplies and more, ADM can help producers plan around these hurdles.

For opportunities to help improve basis levels, ADM offers a hedge-to-arrive contract where you can establish the futures value for a pre-determined delivery date, allowing you to establish the basis for delivery at a later date.

Reach out to your ADM representative to discuss this opportunity or another alternative that might be a good fit for your business.