February 25, 2009

An odd separation of sorts has developed within the US cash grain trade, as export basis divorces itself from a strong interior market, partially in response to speculation that grain barge traffic may resume early on upper reaches of the Mississippi River this spring.

 

A market analysis published by Country Hedging late Monday noted that export and domestic basis for soy was widely mixed during the session, "with the Gulf 6 cents lower and [interior] processors steady to 5 cents [a bushel] firmer."

 

Barge basis bids for spot-shipments of soy to Louisiana Gulf ports have now tumbled 9 cents during just the past five days.

 

CIF "soy basis levels are showing signs of softening, as China gets set to change buying behaviour from the US to South America, said eHedger.

 

Additional pressure is being brought to bear on CIF soy basis by speculation that some sections of the Mississippi River may reopen to commercial navigation earlier than normal this spring, making millions more bushels of landlocked soy immediately available to the Gulf export market.

 

"The sharp warm-up in temperatures two weeks ago allowed Midwest rivers to thaw quickly," said Rich Balvanz with AMS Commodities. "The result may be an earlier-than-normal opening of the upper Mississippi River shipping season."

 

All 17 locks on the mid- to upper Mississippi River closed for routine winter maintenance in December.

 

The quasi-official definition of "river open" on the upper Mississippi is broadly regarded as the first day in which a tow pushing empty barges arrives in Dubuque, Iowa, from St. Louis.

 

"There is talk that a couple tows have already departed St. Louis already," said an Illinois barge trader. "The average official opening is March 12 ... so this would be extremely early, if they make it as far as Dubuque."

 

With barge freight rates recently sinking to two-year lows, he said tow lines are anxious to resume trade with upriver terminals, in hopes of bolstering demand for barges and thereby reviving the depressed tariff market.

 

"Typically those shippers have a bunch of grain to move to the Gulf very quickly, once the river is open, just to clean out grain that has been sitting since harvest," he added.

 

In recent years, harsh late-winter weather has actually delayed the reopening of mid-Mississippi River traffic past the average opening date, to mid-March or beyond.

 

"It looks like we could be opening the river as much as two weeks earlier than many years," Balvanz said. "The river is easily navigable now, but the barges haven't arrived yet. We crossed the river at Dubuque last weekend, and there was only a thin sub-surface ice layer remaining."

 

The US Army Corps of Engineers said four vessels were waiting to transit upriver from Mississippi River Lock #16 near Muscatine, Iowa, as of late Monday.

 

While depressed futures prices have already limited farmer selling, and lifted average interior soy basis by an average of 4 cents since Feb. 17, experts say the resumption of barge traffic could give an additional boost to cash premiums.

 

"I would expect to see river basis firm 5-10 cents, once this (Gulf) demand resumes," said Iowa commodity trade adviser Karl Setzer. "Actually, this is not far off."