Historically heavy rainfall in the Midwest region of the United States has contributed to surging prices of agricultural commodities in more ways than one. Breached levies and flooded fields prevented farmers from planting their crops and also disrupted barge and rail traffic, preventing stockpiles from reaching global markets.
The price of generic corn futures on the Chicago Board of Trade has spiked 29 percent since May 10 to 454.75 cents per bushel (cts/bu), and wheat has made a similar move, up 27.8 percent since May 10 to 543 cts/bu.
Corn has gotten so expensive that cattle farmers are feeding wheat to their cows instead of corn, Bloomberg reported. Typically wheat trades at a premium to corn, but that spread has narrowed considerably this year.
River gauges on the Mississippi River at St. Louis are still recording levels of 40 feet, twice normal water levels and above the water line during the destructive 1993 flood. The Arkansas River is still closed, and the lock at St. Louis has been opened and closed periodically this spring and summer as river levels rose above or fell below the 38-foot mark. Barge traffic on the upper Mississippi River has largely resumed.
Still, last week grain volumes moved by barge were down 85 percent year-over-year, according to the U.S. Department of Agriculture’s weekly Grain Transportation Report.
According to the most recent American Association of Railroads data (he Week 25 report), grains volumes year-to-date are down 4.9 percent. Railroads exposed to Midwest agriculture – BNSF and Union Pacific – have experienced the largest drop in grains volumes so far this year at 11.1 percent and 7.6 percent, respectively.
Although agricultural commodities like corn and wheat are traded in a global market, the torrential rains in the Midwest have been severe enough to disrupt global inventories, especially of corn. A bumper crop of wheat in Russia and Ukraine is expected to offset depressed yields in the United States.
“Global total grains production in 2019/20 is projected to expand by 1 percent, to 2,156 million metric tons,” wrote the International Grains Council in a report Thursday. “The increased outturn does not compensate for tighter opening stocks and overall supply is projected to be the least in four seasons. At the end of 2019/20, total grains stocks are predicted to contract for a third consecutive season, to a five-year low of 588 million metric tons, with the rate of decline accelerating to 31 million year-over-year (26 million metric tons in the previous year), wholly owing to a third successive decline for maize (-48 million metric tons). These are seen dropping to a six-year low, with most of the fall in China (-24 million metric tons) and the USA (-18 million metric tons).”
A positive resolution to the United States’ trade conflict with China could restore demand for American agricultural exports and push prices even higher. President Trump and President Xi met in Osaka, Japan today at the G20 meeting to hash out their differences.
“The short-term weather is a negative but the market still faces a potential extremely tight season ahead and any hint of a trade deal with China could support, as ethanol and corn exports to China will likely be on the short list for China needs,” Lakefront Futures & Options wrote in its daily grains market commentary on Thursday.
FreightWaves has reported on the fall-off in American soybeans exports to China – soybeans are considered a ‘grain’ in railroad industry reporting and the commodities trading industry – as China has looked to South American countries like Brazil and Argentina to replace its supply from the U.S.
As Midwestern farmers saw the demand for their crops crater last year, the Trump Administration began exploring a spending program to offer them some economic relief. Last month, President Trump announced a farmer bailout to the tune of $16 billion.
Some Congressional Republicans, like Iowa’s Senator Chuck Grassley, said that announcing the hiked subsidies in the middle of planting season could further distort the commodities market. Because the bailout package offered higher payouts to soybean farmers, some farmers might decide to plant soybean acreage based on the bailout, not supply and demand for their harvests. If that happens – and so far the evidence is unclear – the supply of corn and wheat could be constrained even further.