Ep. 59 The Mississippi River is Set to Fall to Severe Levels for the Fourth Year in a Row

00;00;00;16 – 00;00;25;29
Dr. Hunter Biram
The Mississippi River is set to fall to severe levels for the fourth year in a row. Barge freight rates have not had their usual response yet, and current Mid-South soybean basis is below both the typical and the drought event average. That and so much more on this episode of Morning Coffee and Ag Markets.

00;00;26;02 – 00;00;37;04
Dr. Hunter Biram
Well, I’m your host, Hunter Biram and with me to ask me a lot of questions, because I know he’s just so enthralled and so interested in this topic today is, Dr. Ryan Loy.

00;00;37;04 – 00;00;45;17
Dr. Ryan Loy
That’s right, that’s right. Absolutely. I’m very eager to ask you very many questions, put you on the spot so that you’ll have to go back and answer later.

00;00;45;20 – 00;00;53;10
Dr. Hunter Biram
You know, these questions have been thoroughly vetted, and they have been reviewed. And I’m looking forward to the discussion.

00;00;53;13 – 00;01;02;24
Dr. Ryan Loy
Good deal. Me too, Hunter. And, this is a very interesting topic. I know you and James and Scott, y’all have all been really working on this for quite some time now.

00;01;02;25 – 00;01;22;16
Dr. Hunter Biram
We have, you know, whenever I started this job in June of 2022, you know, I was coming out of PhD and I was like, man, crop insurance, policy, farm bill. Let’s go. Let’s talk about this. And then the river decided to dry up on us. And, the next thing you know, I’m on ABC News Live talking about the Mississippi River.

00;01;22;16 – 00;01;34;18
Dr. Hunter Biram
So I, I was forced to become, a Mississippi River expert. And, so I’ve learned a lot. And through that, James and Scott and I have been able to share a lot with others.

00;01;34;18 – 00;01;50;07
Dr. Ryan Loy
Well, good. That’s good. I know it’s been very useful information. And I mean, this is a… it was a great work on all y’all’s front. And, in terms of what you’re doing and what it really means for the farmer and, you know, to start I know we’re talking about the Mississippi River. And, you know, really, what does that mean?

00;01;50;07 – 00;01;59;14
Dr. Ryan Loy
That the Mississippi River at Memphis could hit severe lows for that fourth straight year? And really, why does that matter specifically? And during this harvest window in August to November.

00;01;59;14 – 00;02;27;28
Dr. Hunter Biram
Yeah. So by, by severe, what we mean by that is when the river level drops below the negative five foot designation. Or five feet, that’s my Floral, Arkansas coming out. So whenever the river level drops below negative five feet, what James and I have found is that’s the level at which barge or, sorry, yeah, I guess barge operators would start to adjust freight rates and then, soybean, grain elevators along the river would adjust their basis.

00;02;27;28 – 00;02;44;22
Dr. Hunter Biram
It’s kind of like a treatment, or whenever that river level gets to that severe low of negative five feet or below. And so this is the fourth straight year… and I’m not saying that we’re there yet, but we’ve seen it the past three years. Really, we’re kind of, we’re more at the maybe positive 3 to 4ft right now.

00;02;44;24 – 00;03;00;13
Dr. Hunter Biram
But if you look at that level and compare it to last year and then compare it to even 2022, that’s about where we were at this time. So we are trending in a direction that could be suggestive, of, you know, the fourth year in a row in which we see these severe lows.

00;03;00;16 – 00;03;10;04
Dr. Ryan Loy
That makes sense. And that’s I mean, that’s pretty severe. And it’s, you know, especially with everything that’s going on right now, right? This would be just kind of a added on to the pile on. And one of the thousand cuts, right?

00;03;10;11 – 00;03;30;11
Dr. Hunter Biram
Yep. And, you know, one thing that I failed to answer on your question was, why does it matter now? You know, why does it matter in this August, November harvest window? And so, on average, what we find and what USDA would tell you, is that September to November sales, soybean sales were about 58% of the sales for the year, which means that the other 42% is going to end up being stored.

00;03;30;11 – 00;03;36;01
Dr. Hunter Biram
So well over half of our soybeans in the Mid-South are going to be, sold in this harvest window.

00;03;36;04 – 00;03;52;07
Dr. Ryan Loy
And when they’re sold, you know why this really matters and why it’s a big deal is because essentially, as somebody who didn’t work on this, just trying to put it into different terms, is if that water level isn’t high enough, they cannot put those… they can’t do two things, one of two things. They can’t get those barges down to the port.

00;03;52;09 – 00;04;00;19
Dr. Ryan Loy
And if they can get those barges down to the port, they have to weigh less because they don’t have that amount of water that can take all that weight. Is that correct?

00;04;00;22 – 00;04;21;26
Dr. Hunter Biram
That’s right. And I was ready for this. So I have a nice graphic here. It is not in the newsletter, sorry folks, but you can look this up. It’s a very Google-able thing. So I’ve got this fact sheet that shows that, one barge can hold about 1750 tons compared to one railcar is 110 tons compared to one large semi-truck is 25 tons.

00;04;21;28 – 00;04;54;26
Dr. Hunter Biram
So when you start to put this, normalize it, on a one barge basis, it takes 16 railcars to move the same amount of material as one barge and 70 semi trucks to move the same material as one barge. And so the barge transportation is by and large, the most efficient means of transportation. But when you start to think about low river levels, barge freight rates, and then how that translates into lower soybean prices, whenever the river gets to these lower levels, the barge draft is reduced.

00;04;54;28 – 00;05;11;20
Dr. Hunter Biram
And so when the draft is reduced on a barge, you can’t put as many soybeans on it, as you were saying. So that’s… that’s kind of what we’re working with right now, is you can’t transport as many soybeans. And so you want to put it in terms of what we just talked about, maybe instead of 16 railcars worth, you can only move eight railcars worth.

00;05;12;14 – 00;05;23;01
Dr. Hunter Biram
And so it actually moves half of a barge worth. And so it becomes less efficient and then it becomes more expensive to ship the same amount of grain down river.

00;05;23;04 – 00;05;47;28
Dr. Ryan Loy
That makes sense. And it’s very interesting. And, you know, one of the things, as we’re talking here, and one of the things that was difficult for me to wrap my head around when we started recording the Mississippi River basis and the gauge levels every week, was this idea of a negative river stage. And so when we’re talking about a negative river stage, in that reference point of what a zero is compared to that negative five, as you mentioned earlier, negative five is when the basis starts really kicking in.

00;05;47;28 – 00;05;55;11
Dr. Ryan Loy
Could you just briefly maybe explain, you know, how this gauge works and what the National Weather Service means by a low stage at that negative five foot?

00;05;55;16 – 00;06;09;29
Dr. Hunter Biram
Yeah. So clearly we don’t, it’s not that we dig a hole in the ground and then the water just falls through down to the, you know, down to the South Pole or anything like that or whatever that direction would be. Its not like […] you know, there’s a big hole into nothing…

00;06;09;29 – 00;06;11;25
Dr. Ryan Loy
That’s right… you just keep drilling and then it becomes negative.

00;06;11;25 – 00;06;32;19
Dr. Hunter Biram
And then it just becomes a black hole like, no, that’s not at all what’s being said here. So according to the National Weather Service, the gauge zero level is chosen considering many factors like the USGS or the U.S. Geological Survey, references or benchmarks that are near to the gauge site, or a historical level that may have been used for 100 years or more.

00;06;32;20 – 00;06;53;21
Dr. Hunter Biram
These gauge’s zero levels are not changed very often, so it’s really to keep continuity with whatever this datum, is what they would call whatever that standard measure would be, is to try and keep consistency over time. But silt may deposit in the river channel over time, which would fill that channel up. And maybe there’s dredging that happens and you got to dig that out.

00;06;53;24 – 00;07;14;09
Dr. Hunter Biram
And so it’s going to change the river level. But that change is really a function of whatever the bottom of the riverbed is. And so really it’s more about how do we adjust what that zero looks like, so that we don’t have to… how can we fix that zero level so that we don’t keep changing it based on dredging and whenever silt gets deposited along there?

00;07;14;14 – 00;07;17;19
Dr. Ryan Loy
Just a way to standardize it the whole way down the Mississippi River, right?

00;07;17;19 – 00;07;19;29
Dr. Hunter Biram
The whole way down the Mississippi River and throughout time.

00;07;19;29 – 00;07;40;02
Dr. Ryan Loy
Yep, that makes sense. Totally makes sense. And really, when we were looking at, you know, for our listeners, if you have the newsletter in front of you and you know, you’re looking at Hunter’s fantastic breakdown of the gauge height, the gauge height meaning just the river level, and the freight rates that follow. You know, that figure shows that when those barge freight spike, it’s because that gauge height is falling.

00;07;40;05 – 00;07;52;01
Dr. Ryan Loy
So since then, you know, your figures start in 2022, as you had mentioned earlier, you know, since then, have these barge operators adjusted? And, you know, if so, what evidence do you see in the weekly average freight trend?

00;07;52;04 – 00;08;14;22
Dr. Hunter Biram
Yeah. So the short answer is yes. And it is really interesting to look at this data because, you know, what Ryan is referring to is I’ve plotted the historical barge freight rate for I think the Memphis, Tennessee measure, as reported by USDA’s Agricultural Marketing Service. So I’ve got the barge freight rate, I’ve got the gauge height reported by USGS, and then I’ve got the three year average, freight rate.

00;08;14;24 – 00;08;39;11
Dr. Hunter Biram
And so the three year average freight rate is what gives us an idea of what the freight rate should be. And this is going to be from recent history. Now, what I’ve got here is the three year average freight rate for 2019, 2020 and 2021, or the non drought event years because I don’t want to skew the distribution because of this drought event that we first experienced in 22 and have experienced every year since.

00;08;39;12 – 00;08;59;25
Dr. Hunter Biram
So this gives us an idea of why, okay, what should the freight rate typically be in a non drought year? So if you look at 2022 very clearly, there’s a massive jump in the barge freight rate relative to the to the three year average, which in this window is going to be about $15 a ton, thereabouts. And we’ve talked about, you know, how USDA reports the barge freight

00;08;59;25 – 00;09;19;23
Dr. Hunter Biram
rate and all that good stuff. And there will be citations for that in here if you want to dive deep. But for the purpose of this conversation, just know that barge freight rate is about $15 a ton in this window, upwards of $20 a ton. Well, in 2022, when this first event hit and everybody was totally blindsided, we saw freight rates go up to about $90 a ton.

00;09;19;26 – 00;09;40;00
Dr. Hunter Biram
So I mean, you’re looking at six times more seven, seven times more, almost, the freight rate. Okay. What about in 2023 in the same window. Well, the maximum barge freighter it won’t about $50 a tonne. It’s still a mess. And more than three times what the typical day. But not as big as that. $90 in 2022. Okay, now let’s go to 2024.

00;09;40;00 – 00;09;58;09
Dr. Hunter Biram
Let let’s look at that. Now, what you’re seeing is that price again, the barge freight was still above the three year average or that expectation, but only to about $30 or about twice as much. So we’ve seen that over time. The barge freight train operators seem to be adjusting to this in some way. I’m not sure how they’re adjusting to it, but clearly there’s some adjustments being made.

00;09;58;11 – 00;10;14;16
Dr. Hunter Biram
And that’s why I included all these years. Typically I’ll just include one marketing year, but I wanted to highlight that maybe there’s some adjustments being made. And so now where are we at? We’re actually just barely over the three year average in terms of what the weekly freight rates are reported for this time and for the past couple of weeks.

00;10;14;16 – 00;10;28;17
Dr. Hunter Biram
So maybe we’ll see even an even smaller reaction to the freight rate, which maybe basis won’t be impacted as much. Although last year the freight rate didn’t get much above the three year average, and we still saw a pretty big decline in basis.

00;10;28;23 – 00;10;51;14
Dr. Ryan Loy
So it’s very interesting and I guess kind of what it sounds like to me and what it looks like to me, is that that 2022 drought was so unexpected that folks reacted very quickly and aggressively in that freight rate. And now that it’s for lack of better terms, now that it’s happened repeatedly for the last 2 or 3 years, folks are more expecting…. they kind of baked that into their expectations.

00;10;51;17 – 00;11;13;14
Dr. Ryan Loy
And so I think that’s very interesting in terms of… and kind of like how you said, I’m not really sure how they adjusted, but it’s obvious that they have been doing it, right. So we’ve kind of gone through how that reduced barge draft again, that lower level there, they can’t be as heavy. We’ve kind of talked through how that changes the math with having to take more trips, fewer tons per barge, which makes it all the more expensive, right.

00;11;13;14 – 00;11;26;09
Dr. Ryan Loy
And less efficient. So how quickly do higher freight costs really flow through to the local cash bids and basis? Is it an instant change or does it take some time once those freight rates have been established to kind of flow back into, basis.

00;11;26;11 – 00;11;50;27
Dr. Hunter Biram
What was in the past few years was that it’s a pretty quick adjustment, really. Like once that river level falls and the bit in the barge freight rates do go up, we do see that the basis declined significantly. And so it’s pretty fast. And so why does that happen? Well, I mean again the barge freight rate that’s going to be a cost, a cost of doing business on the part of the grain elevator, because they have to pay that rate to ship the grain that they’re buying.

00;11;50;29 – 00;12;06;17
Dr. Hunter Biram
And so if their cost of production is going up, how are they going to adjust their margins? They’re going to lower the price that they’re going to pay for the crop at. So it’s kind of like, you know, increased cost of handling. And so we’re actually going to lower the purchase price to make that adjustment.

00;12;06;20 – 00;12;16;12
Dr. Hunter Biram
And so that’s why typically the grain elevator operators tend to pass on these higher barge freight rates onto farmers in the form of lower cash bids, which tends to equate to lower basis.

00;12;16;12 – 00;12;29;05
Dr. Ryan Loy
And what do you mean by lower basis? You mean that that spread between the cash price and the futures price is getting wider, meaning that the futures price at that time, if it’s a lower basis, the futures price going to be higher relative to the cash. Is that right? That’s right. Or did I say the opposite? Okay.

00;12;29;05 – 00;12;29;25
Dr. Hunter Biram
No that’s right.

00;12;29;25 – 00;12;52;05
Dr. Ryan Loy
Perfect. Well that was great. And then I mean that really makes sense in terms of what they’re trying to do. I mean they’re running a business too, right. And so this is really interesting. One of the interesting notes in here is, you know, noting that that Mid-South soybean basis is weaker right now as you start at the beginning, you know, both the five year non drought average and the average for 2022 to 2024, or the drought years.

00;12;52;05 – 00;13;01;20
Dr. Ryan Loy
So if we’re weaker right now than that five year in those drought years, what is driving this, you know, kind of anomaly for the weak basis in 2025 so far?

00;13;01;20 – 00;13;19;17
Dr. Hunter Biram
Yeah. You know, I think, China is going to be where I go with that. Just because we have no new crop sales to China thus far, although we have seen some strength in the futures markets as of today, the recording of this on August the 21st, it’ll be released at a later date. But as of August 21st, we’re actually seeing a pretty big rally, about a 20 cent rally in soybeans.

00;13;19;17 – 00;13;40;08
Dr. Hunter Biram
I don’t think it’s necessarily from China new crop sales. But somebody’s buying it. It could be. It could be Mexico. You know, Scott’s been talking to this, it could be Mexico, Pakistan, Taiwan, Egypt, Japan, as the top five new crop purchasers. But still zero sales to China. So I think these low prices, I think buyers are responding to the low prices, and buying more at this…

00;13;40;08 – 00;13;59;27
Dr. Hunter Biram
Well, at the time it was about a about a $10.10, expected market price. So maybe it’s that, maybe with these tighter balance sheets, the, the funds may be responding to that. But I think it I think the long and the short of it is maybe expectation of river levels, but also just sluggish exports overall.

00;14;00;03 – 00;14;24;01
Dr. Ryan Loy
Oh that makes sense, that definitely does, you know, if you don’t have that downstream, in both figuratively and literally here, if you don’t have that downstream market, you know, where you’re going to go with it? And so that’s a big, I think that’s a big question a lot of people are asking. And you know, I know that just looking around the soybeans, you know, the in the news the last few days, it’s just been how can we bring back that Chinese market and get them buying more?

00;14;24;01 – 00;14;41;07
Dr. Ryan Loy
Because, you know, they, you know, they’re number one, and we do have number two, but there’s about a ten, as of last year, there was about a $10 billion difference between China’s purchases, which was number one, and, European Union purchases, which is number two is about $10 billion difference between number one and number two. So, you know, how do you spread that out?

00;14;41;07 – 00;15;01;14
Dr. Hunter Biram
I mean, it could be just mostly China’s driving that. I mean, it’s got to be that they haven’t bought anything. There have been no new crop sales. And so grain elevators probably aren’t that excited, right now. But maybe, I mean, I, I had to keep going back and forth. There’s a lot of dynamics here because, I mean, you got this new trade agreement with the EEU that just came out.

00;15;01;14 – 00;15;09;29
Dr. Hunter Biram
Hot off the press today, too. So, maybe it is that, maybe it is that that China is just weighing that heavily on, grain elevators right now.

00;15;09;29 – 00;15;30;11
Dr. Ryan Loy
Absolutely. I think specifically, definitely specifically for soybeans, right? Well, one of the last things I wanted to bring up to you is really just, you know, we’ve talked about a lot today, I think for some folks who maybe don’t expose themselves to this, me being one, you know, very often, could you just walk us through a very quick example, maybe using, you know, Helena, Arkansas, walk us through this example,

00;15;30;11 – 00;15;47;07
Dr. Ryan Loy
you know, why was the new crop basis around negative 15 on August 20th this year, and now it’s roughly $0.41 a -$0.41 below that non drought average and -$0.25 below the drought year average. What does that signal to producers.

00;15;47;12 – 00;16;06;02
Dr. Hunter Biram
Yeah. So I think what that signals is to store. I think signals to store. And of course there’s, that’s a whole other conversation. That’s a whole other series of podcasts. But we will have some links to some great Southern Ag Today articles by our colleagues at Mississippi State, Tennessee and Kentucky that talk about storage and marketing assistance, loans and things like that.

00;16;06;02 – 00;16;32;15
Dr. Hunter Biram
But, you know, with, with weak basis, you think about the grain elevator, right? There’s going to be so much grain that’s about to come their way. They’re trying to discourage folks who, if they can store to actually store because they’re like, listen, we already have so much grain that, that we’re about to be handling, how about you go ahead and hold off on yours and then we’ll buy yours later, maybe in January, February or March, just to give us time to get this to, to deplete our stocks and get them out.

00;16;32;17 – 00;16;35;21
Dr. Hunter Biram
So I think the short answer really is just to store.

00;16;35;23 – 00;16;44;24
Dr. Ryan Loy
So it’s all about real estate, right? Yeah. That’s right. That’s really it. At the end of the day here. Well, I really appreciate you letting me walk through this with you. You know, I’ve learned a lot and I hope our listeners have, too.

00;16;44;25 – 00;16;50;22
Dr. Hunter Biram
Well, thank you for coming in and asking me some questions. Absolutely. And, for being here so that I can get this by myself.

00;16;50;27 – 00;16;52;18
Dr. Ryan Loy
Of course. Any time.

00;16;52;20 – 00;17;00;11
Dr. Hunter Biram
So with that, folks, thank you for tuning in. Hopefully you learned something and you found this helpful for your operation. And so with that, stay tuned for the market report. Thank you.