Weekly Insights: Mississippi River Update
New River Elevator on Upper Missouri River
According to USDA’s Grain Transportation Report:
Construction has begun on a new barge loading and unloading facility construction on the Missouri River at Mile 680.5 near Blencoe, Iowa. Expected to handle its first grain barge shipment by the end of 2020, the facility should bring barge traffic back to the Northern Missouri River, up to 760 river miles from St. Louis. Currently, more than 90% of the barge movements along the River are for sand, gravel, stone, rock, limestone, soil, and dredged material. The new farmer-owned facility plans to add more agricultural movements on the river, particularly for soybeans and corn. The facility could potentially shift some high-volume freight from roads to inland waterways in Western Iowa. The last time barges could regularly travel this far north on the Missouri River was in the early 2000s.
This is significant because the river elevator will provide Center Gulf barge competition to the shuttle elevators shipping to the Pacific Northwest (PNW). The hope is barge traffic will reach 72 grain barges or 21.6 million bushels in 2021. This is a great development for farmers because it lowers transportation cost to an export elevator, which increases the interior cash price.
Mississippi River System by Basin
If the river elevator is successful, expect more river elevator capacity to be built. The area has access to large quantities of corn, soybeans, wheat, and by-products (DDGS and SBM). Ultimately, the success of the river elevator will depend on water availability.
The Sioux City Journal reported:
Driven primarily by uncertainty over future flows, Missouri River barge traffic declined significantly since the mid-1990s. Prior to that time, the Big Soo Terminal in Sioux City averaged around 160 barges per year. By 2004, no barges docked at the terminal, the first time that had happened since the Mighty Mo was straightened and deepened in the early 1960s.
For many years, Missouri River barge interests fought to maintain consistent flows for upstream navigation, opposed by some environmental groups looking to protect endangered species and upstream recreational interests that lobbied to keep more water in a series of reservoirs in Montana, North Dakota and South Dakota.
Caught in the middle was the Corps of Engineers, which found itself under pressure to make changes to a master plan for the river that historically favored navigation.
The U.S. Army Corps of Engineers, which manages the Missouri, assured the co-op it would maintain a nine-foot-deep, 300-foot-wide channel. The North Pacific Region and Missouri River Water Management Divisions play a key role in developing and operating the complex system of multiple-purpose projects. A priority for navigation is the law for the rest of the Mississippi River System, but the Missouri River Basin has multi-use mandate, which creates conflict during periods of lower water levels. This role involves hydrologic investigations, power system analyses, flood risk reduction studies, project economic studies, operational planning, seasonal, and day-to-day project control. The Army Corps states:
The Missouri River is the longest river in the U.S., extending 2,619 miles from its source at Hell Roaring Creek and 2,321 miles from Three Forks, Montana, where the Jefferson, Madison and Gallatin Rivers converge in Southwestern Montana, near the town of Three Forks. The Missouri River flows generally east and south about 2,321 miles to join the Mississippi River just upstream from St. Louis, Missouri. The Missouri River basin has a total drainage area of 529,350 square miles, including about 9,700 square miles in Canada. That part within the United States includes all of Nebraska; most of Montana, Wyoming, North Dakota, and South Dakota; about half of Kansas and Missouri; and smaller parts of Iowa, Colorado, and Minnesota.
There are six Missouri River Mainstem Reservoir System dams: Fort Peck, Garrison, Oahe, Big Bend, Fort Randall, and Gavins Point. These six Corps reservoirs contain about 73.4 million acre-feet of storage capacity and comprise the largest reservoir system in the United States. It contains 71% of the installed capacity in the basin’s Federal hydroelectric power system, provides almost all of the reservoir support for downstream flow support on the Missouri River and contributes greatly to flood risk reduction for over two million acres of land in the floodplain of the Missouri River. At normal pool levels, these reservoirs provide an aggregate water surface area of one million acres for recreation and fish and wildlife enhancement. Other major project purposes are fish and wildlife, navigation, municipal and industrial water supply, irrigation, and recreation.
Due to precipitation levels being much lower west of the Mississippi River, the question of who owns the water is more intense than areas east of the Mississippi River that are more prone to flooding. During periods of drought on the Upper Mississippi River, the Missouri River water flow is crucial for water levels between the mouth of the Missouri River and Mouth of the Ohio River (Mid-Mississippi River). The Upper Mississippi River and Illinois River are dependent on the Mid-Mississippi River to exports crops.
Missouri River Basin
Source: Army Corps
Illinois River Update
Peoria Lock and Dam and LaGrange Lock and Dam are open for business. Starved Rock and Marseilles will remain closed until October 29. All work at Dresden should be completed by October 22.
LaGrange Lock and Dam and Peoria Lock and Dam on the Illinois River are wicket dams. The wicket dam design was revolutionary because it allowed the river to flow naturally until water needed to be restricted as shown on the following pictures. Wicket gates are essentially movable dams used to help maintain a navigational pool in a river. During high flows, the wickets are lowered, and open river conditions prevail. The lock is used only during low and moderate river flows when the wicket dams are raised to maintain the nine-foot navigation depth.
The LaGrange Lock and Dam is central to the farming community as it is the last lock before the Illinois River joins with the Mississippi River. Of the 15 million tons of food and farm products transported on the Illinois River, 12 million tons came through the LaGrange Lock and Dam. In 2017, the average delay per tow was 7.95 hours. By comparison, Peoria Lock and Dam was only one hour. If the rehabilitation decreases the average delay per tow by seven hours, with an annual loaded barge volume of 17,282 barges or 1,152 tows assuming 15 barges per tow, the rehabilitation will save 8,035 hours per year. The real importance is that the shippers on the Illinois River have confidence the lock and dams will be passable.
LaGrange Lock and Dam with Wickets Up
Peoria Lock and Dam with Wickets Down
Upper Mississippi River Crop Movements
The upper Mississippi River closes in early December and reopens mid-March. Farmers above Lock and Dam 27 (Granite City, Illinois) must factor the river closing into their marketing decisions. The decision is how much to sell versus keep in storage until spring. The basis and futures are telling the farmers to sell everything. If he wants to stay long the market, sell the cash price 10 cents over November, and buy a May future at 12 cents below November. The same situation is true for corn.
Soybean Barge Movements through Key Locks (Five Year Seasonal)
Soybean barge movements are up 78% over the last four weeks compared to 2019. Considering that the Illinois River has been closed off, the numbers are great. Pro Farmer reported:
China imported 9.79 MMT of soybeans from the world during September, a marginal increase from the 9.60 MMT of soybeans the country imported during August, but a 19% jump from the 8.2 MMT the country imported last September, according to preliminary data released by the General Administration of Customs. “Some cargoes were delayed earlier and cleared customs in September,” said Xie Huilan, an analyst with the agriculture consultancy Cofeed. “The shipments were still mainly from Brazil,” Xie added. Arrivals of U.S. soybeans are expected to rise next month and continue to strengthen over the next few months. Strong crush margins had China ramping up imports of soybeans and now inventories have climbed to record-setting levels. Nine months into the year, China has imported 74.53 MMT of soybeans, a 15.5% surge from year-ago.
With record high grain inspections to China in August and September combined with plenty of stocks, the barge volumes should continue to be very high.
Lock and Dam 27 Soybean Barge Movements
Corn barge movements are below last year, but that is largely a reflection of soybeans filling river elevators. Before the trade war, it was common for soybeans to crowd out all the other commodities until February. The volume for all crops locking through Lock and Dam 27 is up 16% over the last four weeks compared to 2019. With the Illinois River largely reopened, barge movements should boom.
Scattered rains fell over the weekend and more are in the forecast for central Brazil this week, but temperatures hit record highs of 110 to 112 degrees Fahrenheit early October in Mato Grosso do Sul and Sao Paulo. AgRural reports just 3.4% of the soybean crop has been planted, the slowest planting pace in a decade and well behind 11.1% seeded in 2019. The winter corn crop is double cropped with soybeans. Therefor slow soybean plantings will hurt the winter corn crop. This could create an opportunity for U.S. corn exports, especially if La Nina results in Brazil having drier than normal weather. The delayed winter corn crop will not have an impact until next May.
Lock and Dam 27 Corn Barge Movements
Barge Freight Rates
The recent surge in exports has the newly quoted Illinois River tariff at 510% of tariff versus 268% of tariff before the closure. The three-month forward barge freight rate remains at the three-year average but above the five-year average. (A detailed explanation of barge freight rate calculations is provided at the end of the section.) The spot rate for the percent of Illinois River Barge Tariff Rate typically peaks in September or October.
Jeffboat, the largest inland barge building yard, was closed in 2019, which is constraining new hopper barge construction. According to River Transport News (RTN), 311 jumbo hopper barges were removed from the overall fleet in 2018. RTN said that “given the fleet losses identified thus far, it would be safe to say that the inland jumbo hopper fleet shrank by a minimum of 97 barges in 2018.” Most expect the hopper barge fleet to be reduced even more in 2019.
The long-term issues for the inland barge market are decreasing U.S. coal consumption, a young fleet that lasts thirty years, and maintenance of the locks and dams. Also, as the push boat equipment is being “right sized” for the river segment, the barges can be turned quicker, which effectively increases capacity. The different river segments have different tow configurations. More powerful push boats can max out the number of barges allowed by the Coast Guard on the Lower Mississippi River.
The idea the barge industry has learned constraint is difficult to accept. For example, the over built tank market with new equipment received a shot of demand from the petroleum industry in 2018 and 2019. The industry quickly increased tank barge new builds in 2019 and 2020. Why build a 40-year asset when new pipelines and new pipeline reconfigurations are going to reduce transportation demand from all the other transportation modes? If history holds, in 2021, the barge industry will increase the number of hopper barges built based on record Chinese grain and soybean imports. The good news the available supply will keep transportation costs low for farmers.
Illinois Tariff Rates
Barge Freight Rate Calculations: According to USDA AMS, “The U.S. Inland Waterway System utilizes a percent of tariff system to establish barge freight rates. The tariffs were originally from the Bulk Grain and Grain Products Freight Tariff No. 7, which were issued by the Waterways Freight Bureau (WFB) of the Interstate Commerce Commission (ICC). In 1976, the United States Department of Justice entered into an agreement with the ICC and made Tariff No. 7 no longer applicable. Today, the WFB no longer exists and the ICC has become the Surface Transportation Board of the United States Department of Transportation. However, the barge industry continues to use the tariffs as benchmarks as rate units.
To calculate the rate in dollars per ton, multiply the percent of tariff rate by the 1976 benchmark. As an example, a 200% tariff for Minneapolis-St. Paul barge grain would equal 2.00 times the benchmark rate of $6.19, or $12.38 per ton. Each city on the river has its own benchmark (see table below), with the northern most cities having the highest benchmarks.”
Inland Mississippi Tariff Rates
Source: USDA AMS