Ep. 7 Low Water Levels on the Mississippi River: Not the Three-Peat We Want

00;00;07;17 – 00;00;10;16
Dr. Loy
So, yeah, I’m very glad to be back. Glad to be in the office.

00;00;10;23 – 00;00;12;06
Dr. Biram
I’m glad you’re back, too. I missed you.

00;00;12;11 – 00;00;29;05
Dr. Loy
I missed you too, man. I miss everything about Arkansas. It was crazy, but glad to be off the road and glad to be here recording this week’s episode with you. So. As you probably guessed, we don’t have Riley Smith here in the studio this morning. He’s out collecting input price data for us. And so I’m going to host it this week.

00;00;29;05 – 00;00;43;12
Dr. Loy
And my name is Ryan Loy. I’m the assistant professor here in the Department of Agricultural Economics. And with me today is I have Hunter Biram, who is also assistant professor of agricultural economics and extension economist for as policy guru, crop insurance guy, everything all around.

00;00;43;14 – 00;00;47;13
Dr. Biram
Hey, you know, I do what I can. That’s right.

00;00;47;15 – 00;00;56;23
Dr. Loy
That’s right. Well, today what we’re talking about is we’re talking about the Mississippi River and its effect on basis, specifically with some soybeans and some corn. Right?

00;00;56;25 – 00;01;24;18
Dr. Biram
Yeah. And, you know, you know, the, the, the title of this podcast in the newsletter I thought was, it’s clever, but it’s the straight up truth. It’s, low river levels on the Mississippi River, not the three peat that we want. For those of you who are not, you know, sports folks, a three peat is when someone wins something three times in a row, like a, you know, three Super Bowls in a row or three World Series in a row, 3 in 2 a, you know, championships in a row.

00;01;24;21 – 00;01;36;13
Dr. Biram
And, I thought of three peat here because, we are dealing with the same dang issue with the Mississippi River that we’ve dealt with since 2022. and that’s we don’t want that.

00;01;36;13 – 00;01;47;22
Dr. Loy
No, we don’t. And it’s really it’s really crazy to me. Very surprising. You know, I thought we we had a lot of summer rain, at least it seemed to me we did. I mean, we flooded. I felt like we flooded at least 2 or 3 times this summer.

00;01;47;24 – 00;02;03;23
Dr. Biram
Yeah, this past weekend, I know in, West Little Rock. Oh, my gosh, we got a ton of rain. I think we got a little over almost three inches in our backyard. And that’s probably an underestimate because we have so many dang trees. so, I mean, we probably got closer to 3.5in, at our house, and I was like, oh, well, hey, that’ll be good for the river.

00;02;03;26 – 00;02;07;00
Dr. Biram
And it was good for about a day. And, then the river levels fell again.

00;02;07;00 – 00;02;21;26
Dr. Loy
That’s really surprising to me. And it’s this is something that’s really going to impact us this year. Again, unfortunately, I think that at least I know that I was hoping to I was betting on the fact that it would be a different, time this year, but it seems like it’s not going to be. So it’s gonna be tough.

00;02;21;27 – 00;02;44;08
Dr. Biram
And I think it is because of local rain. but I’ve also heard it’s because of, lack of snowpack up the north and, lack of, rain in the Ohio River Valley. And, so those things up there impact us here. And, you know, it’s hard to hard to believe that snowpack in the north and rains in the Ohio River Valley could impact, us here in Arkansas because.

00;02;44;08 – 00;02;48;14
Dr. Loy
All the water flows to the ocean. Right? So if it’s going to melt, it’s going to go down the missing gravity.

00;02;48;14 – 00;02;49;08
Dr. Biram
I know, I.

00;02;49;08 – 00;02;51;07
Dr. Loy
Know.

00;02;51;09 – 00;03;10;04
Dr. Biram
But, that’s that’s exactly right. But I mean, we are in the, we’re approaching the low stage. And what I mean by that is the designated low stage by the National Weather Service. that’s -five feet. So you say negative five. How in the world can water be measured below the surface? And that’s a really good question.

00;03;10;04 – 00;03;39;00
Dr. Biram
But the way to think about this is actually it’s based on an agreed upon zero level. and so some, some engineers got together and said, hey, this is going to be our zero level once it starts to dip below that and things are getting pretty serious. And so now we’re five feet below that zero level. And in the past, I think the past ten years, we’ve only seen that happen four times that be 2015, 2017, 2022 and in 2023 that that’s below the, set below the zero.

00;03;39;03 – 00;03;40;23
Dr. Loy
I believe that’s below. That’s at negative.

00;03;40;28 – 00;03;42;03
Dr. Biram
Five, right. Yeah.

00;03;42;04 – 00;03;44;14
Dr. Loy
Yep. So that’s that critical water stage level. Right.

00;03;44;16 – 00;04;03;16
Dr. Biram
So four times in the past ten years, pretty significant. I mean, and we hadn’t experienced it. so 2022 is the most was to, to me, the alarming wake up call because I think we all were kind of sleeping on it. Yeah. And, but the time for that was 2017. But even 2017, it wasn’t as serious as it was in 2022.

00;04;03;16 – 00;04;20;05
Dr. Biram
I mean, we were talking about -ten feet and then, in 2023 last year, -11ft. And so the question I have this year is are we going to get -12ft this year? I mean, is it really going to get that low? and so, you know, I think people naturally ask, well, why the heck is important, right?

00;04;20;05 – 00;04;28;27
Dr. Loy
Why does it matter to us? You know, I mean, we know the Mississippi River is important. We drive over it to get to Memphis and. But what what is it? What is it about it that’s really important to us here in Arkansas?

00;04;29;04 – 00;04;51;15
Dr. Biram
Yeah, I think, think about boats, think about boats. So, think about exports and trade and so, so, whenever beans go to market, farmers are going to harvest them. So we’re entering harvest right now. And, you know, those those banks just don’t collect on the farm, and then they just never go anywhere. They got to be marketed, they got to be sold.

00;04;51;18 – 00;05;11;26
Dr. Biram
And so, farmers will sell them to, elevators that are, you know, they are in East Arkansas, and there’s even one in little Rock and, you know, Jonesboro, Stuttgart, Des Arc, Helena, West Memphis, you know, Wheatley. There’s so many places where there’s elevators around, but there are some that are right there along, along the river.

00;05;11;26 – 00;05;34;17
Dr. Biram
And so what happens is those elevators that are right along the river, they’re going to offload those beans into a barge, and then the barge is going to then be going to head down to New Orleans, where ultimately it’s going to go out to the world for for global export. And so, the issue with the low river level is you can’t transport as much as many soybeans or as much material period.

00;05;34;17 – 00;05;54;20
Dr. Biram
In a barge when the river level is low. Why? Well, there’s a risk of the of the barge running aground. And so if there’s more weight on the barge, you know, this is simple physics here. There’s more weight on the barge. It’s going to get lower and lower and closer to the ground, essentially. And that’s the last thing that we want on these barges to run aground, which that happened in 2022.

00;05;54;20 – 00;06;17;07
Dr. Biram
In some instances in 2023. So you have to reduce the barge draft, which is the distance between the water line and the top of the hull, the boat. And so the idea being when you reduce the, when you when you reduce the draft, what you’re saying is you can’t go as deep into the water as you could beforehand because again, you’re trying to prevent that risk of the barge running at ground.

00;06;17;07 – 00;06;36;10
Dr. Biram
So what does that mean? You’re trying to move the same in a same amount of grain, but with more barges. So more fuel cost, right. So it’s more expensive. So the so the barge freight rate goes up. Well how does that get passed on to us? You know, here in Arkansas that gets handed over to the grain elevator and the grain elevator says, listen, I can’t control that cost.

00;06;36;10 – 00;06;51;14
Dr. Biram
But the cost that I can’t control is the cost to purchase soybeans or corn, for instance. And so they’re going to say, all right, I’m going to offer a lower price. I’m going to lower a offer, a lower price to the farmer for their, for their beans, because, you know, I still got to make money to rice.

00;06;51;20 – 00;06;59;21
Dr. Biram
And so that shows up in the form of lower basis. And basis is the difference in the cash price and the egg level for each price.

00;06;59;22 – 00;07;14;13
Dr. Loy
No. That’s very interesting. And so just to kind of repeat back to make sure I even I understood it and when you were talking about these low Mississippi River levels and you talk about the drought and you mentioned the weight of the boat and how how far they’re able to get down and how much weight they can actually put on that boat.

00;07;14;15 – 00;07;32;25
Dr. Loy
What you’re saying is, is that with less water, they can’t displace that weight as much. That’s right. And therefore they have to lighten that load a little bit. But lightning that load puts a pretty big cost on everybody who’s putting those, that grain onto the ships. And when those costs raise, that cost is going to get pushed right back to the farmers.

00;07;33;00 – 00;07;33;25
Dr. Biram
That’s right.

00;07;33;28 – 00;07;45;18
Dr. Loy
Yeah. And that that’s I think that’s a big deal with we already have strained profit margins. We already have high input costs. It’s going to be expensive for them to get to the elevator in the first place. Yeah. And then let alone if they’re dealing with a lower cash price. Right.

00;07;45;21 – 00;07;54;27
Dr. Biram
Oh yeah. And I mean talk about interest. I mean, that’s your area, right? I mean, like, you know, more than anybody, I mean, interest costs are I mean, probably the highest that we’ve seen and I don’t know how many years.

00;07;54;27 – 00;08;13;09
Dr. Loy
Oh yeah. I mean, it’s it’s ridiculous right now. I mean, this is the highest fed funds rate since I mean, I believe it’s about 2007 and maybe a little bit earlier. Either way, it is the extremely high interest rate environment. And even if it looks to get better, these producers now are still paying a ridiculous amount on their interest.

00;08;13;09 – 00;08;15;07
Dr. Loy
If they were to store those bushels.

00;08;15;10 – 00;08;23;19
Dr. Biram
That’s a that’s a great point. So maybe maybe you talk a little bit about that, talk about the cost of storing grain and how interest for operating one point pays into that.

00;08;23;20 – 00;08;43;02
Dr. Loy
Absolutely, absolutely. So, you know, as, as Hunter’s describing, if you went to deliver your bushels to the, to the poor or to excuse me, to the elevator that ends up going to the Mississippi River right now, you’re going to be faced with a very low cash price relative to the futures price. And one risk management option is to store your grain on farm or off farm.

00;08;43;04 – 00;09;06;13
Dr. Loy
But let’s say, for example, you have on farm storage. Well, that on farm storage cost money one. But you also need to pay back your operating notes for the year. And the way to pay back your operating notes is through selling your grain. Well, if you don’t want to take this big chunk of your profit margins out by selling on this on the cash market right now, if you stored in weight, maybe you can get some price upside on your grain.

00;09;06;16 – 00;09;33;08
Dr. Loy
But by doing that, you are not selling your grain, and thus you’re accumulating interest on your operating note by not selling it. And so there is this is a good topic, I think, for us to discuss. And sometime in the future, especially as this marketing year continues, just talking about how that per bushel expense on your interest and really what price you should be looking for for that cash market or that futures price to hit for you to say, okay, I can cover my interest expense and then some.

00;09;33;10 – 00;09;47;21
Dr. Biram
I think that’s great. And we definitely need to do a whole episode just on that. But I think it’s worth noting here with the Mississippi River because, you know, I hate to be gloom and doom and then have no way out, right? That’s right. But I think marketing is, marketing in the post-harvest window is one way to do it.

00;09;47;21 – 00;10;09;05
Dr. Biram
And and we will cover that a greater link. But I appreciate you did it detail. And then essentially what we’re talking about is, the fundamental opportunity cost. Right. That’s exactly the implicit cost of, storing your grain. so, you know, but back to the back to the river. Where are we even at right now? So, so, you know, in every newsletter we, we do the Mississippi River level and then we do basis, in East Arkansas.

00;10;09;05 – 00;10;27;00
Dr. Biram
And so but one thing that I wanted to look at, talk about is historical. How has basis trended in the harvest window. And so typically I’m thinking August 1st, you know, to the end of November for the harvest, for the harvest window and but this time around, I actually threw in some data points are run through and some data points.

00;10;27;00 – 00;10;46;07
Dr. Biram
I appreciate him, you know, digging up some data for me to to look at the July through where we are now window. And so first I’ll just say basis at this time of the year actually tends to be a little positive for soybeans tends to be about $0.10 positive is what the is what the five year average basis.

00;10;46;07 – 00;11;05;14
Dr. Biram
And I say five year average. Some people would say, wait a minute. Are you thrown in 2023 and 2022? Those are abnormally weird years. Well, actually took those years out. So aside from extreme weather, aside from drought. So we’re looking at 2017 through 2021, thinking of those years. What should the basis typically be aside from this extreme weather event?

00;11;05;16 – 00;11;26;14
Dr. Biram
it should be about positive ten. And then, you know, as we get deeper into harvest year, you’re looking at, you know, August 1st to August 15th here. The basis gets the weakest there. And you know, it gets down to about almost -50 in some instances -40. But I think overall we can we can safely say that about $0.30 under the futures price is what the average basis in Arkansas is going to be.

00;11;26;16 – 00;11;28;22
Dr. Biram
under the futures price generally speaking.

00;11;28;27 – 00;11;40;20
Dr. Loy
So if you say -30 under. And so what that means is that spread right now, that cash price that you’re that that farmer is going to go get at the elevators $0.30 below that futures price. They could have locked in at at an earlier time.

00;11;40;22 – 00;11;54;07
Dr. Biram
That’s right. Yeah. It’s all about the difference in the cash in the futures price. And so you know normally we think at $0.30. And at this time of the year maybe positive $0.10 quarter to the five year average. And there’ll be a graph for this newsletter. So I encourage you to check that out if you haven’t checked it out.

00;11;54;10 – 00;12;09;26
Dr. Biram
we need to like put a link, I think, on the Spotify or the Apple page or some things that people can like go check it out, they’re not subscribed. But, we will get to work on them anyway. We have a nice figure here. And, so just so just I’m getting off track here. Think about this positive ten basis.

00;12;09;26 – 00;12;29;23
Dr. Biram
So $0.10 above the futures price. Typically for this time of the year. But we’re actually seeing -39 to 40. Wow. So we’re thinking like 40 to $0.50 lower than it normally is. Oh boy. and pair that with the low futures markets already based on you know this high carry out and all these high global ending stocks.

00;12;29;23 – 00;12;37;14
Dr. Biram
That’s right. it’s it’s a pretty bleak picture. And we are trending down and there’s no look good maybe trending up at this point.

00;12;37;14 – 00;12;57;13
Dr. Loy
That’s right. And I think you you touched on something there that’s very important. You know, when we talk about these complicated things sometimes. But a lot of this just comes down to supply and demand very simply. Right. And where our reprieve is. And in other years, maybe we don’t have those high supplies. However, this year we really have the high supplies mixed with record production.

00;12;57;15 – 00;13;13;03
Dr. Loy
I know that I just got back from the Midwest and the the crop condition up there is almost perfect. And I mean, they’re going to have some record yields. And I think Arkansas is poised to do the same with high supplies and record yields. There’s really not going to be a whole lot of upside potential on this basis, is there?

00;13;13;04 – 00;13;30;20
Dr. Biram
Oh yeah. You’re right on. I mean, if anything, I mean, just based on what we’ve heard, not from Arkansas folks and what you saw in the Midwest in your during your trip to that conference a couple of weeks ago. I mean, I would venture to say USDA might even be a little low. Yeah. Which is crazy to me.

00;13;30;22 – 00;13;53;04
Dr. Biram
Crazy to think about that. But I mean, I mean, I would not be surprised to hear of places that in Arkansas on another plate, I mean, saying 250 corn. 275, which is insane. We have the state average last year, 183. And the projected yield from was the this past, here recently was like 187. Yeah. That’s that’s the state average of the water.

00;13;53;04 – 00;14;08;13
Dr. Biram
So some folks I do think that there could be some out there. Now, would that be the majority that I’m not sure of? I don’t know if that’s the majority, that they could be the outlier. Right. But there may be a few people that are out there. but to your point, on the Midwest, it sounds to me like there could be a lot of people that are getting those yields.

00;14;08;13 – 00;14;25;18
Dr. Loy
I think there’s a lot of yields out there yet to be discovered, you know, and to really I think it’s going to rear its ugly head come harvest. I really think so. And of course, I wouldn’t say something like that in a year where we had perfect prices. Right. But right when we’re, we’re dealing with the lowest prices, the highest inputs we paid in years mixed with record production.

00;14;25;18 – 00;14;26;25
Dr. Loy
That’s kind of a perfect storm.

00;14;26;27 – 00;14;50;09
Dr. Biram
Yeah. And, you know, we can we can definitely have a whole talk on on break even. But I’ll just say right now, break even yields on on these prices that we have in Arkansas. I mean you’re looking at 60 plus beans, you know, 280 corn. I mean, so that’s where you’re saying, break even yields if you don’t do any kind of price risk management, even if you do price risk management, frankly, it’s not even going to help you out very much on the break even yields.

00;14;50;12 – 00;15;12;08
Dr. Loy
Well, Hunter, what I’m hearing from you is that in the future, when these sorts of things happen, farmers can, you know, the marketing can help with these issues. And really, you know, marketing early and storing your crop can really help kind of wade this storm when these things happen. And I think that’s something that we should highlight a little bit further in another episode coming for a, kind of coming soon.

00;15;12;08 – 00;15;13;12
Dr. Loy
Yeah. Thanks. So.

00;15;13;14 – 00;15;17;21
Dr. Biram
Absolutely. well, I think that’s all I’ve got from, you.

00;15;17;23 – 00;15;28;01
Dr. Loy
Know, I think that’s it. I really appreciate everybody tuning in today for your morning coffee and ag markets. Next week Riley will be back with his, auctioneer voice at the helm. And, we look forward to it.

00;15;28;01 – 00;15;30;18
Dr. Biram
I want to thank you all.

00;15;30;20 – 00;15;37;25
Dr. Loy
Yeah. That’s right. All right. We all have a great weekend and we look forward to talking to you all soon.

00;15;37;28 – 00;15;55;27
Dr. Biram
Hey, folks, this is Hunter Biram here with you with your market report. so futures markets as of, as of this recording, which is going to be, Friday morning at 9:24 we’re seeing corn September corn futures trading at $3.76, which is down $0.24 from from a month ago, which was $4 in a year ago.

00;15;55;27 – 00;16;23;03
Dr. Biram
We were $4.67. So we’re down a dollar year over year on corn, rice. And for the September 24th, reference futures contract trading at 14.79 month ago, 14.60 year ago. 14 or sorry, 15.49. So, down $0.70 per hundredweight and November soybeans. trading in 19.82, down a month ago from 10.69. So down $0.87 a year ago.

00;16;23;06 – 00;16;45;07
Dr. Biram
Well, we are sitting at 13.46 and now we’re at 9.82 on futures market. July wheat trading at 5.83 month ago was 6.08. So down $0.25 a year ago we were 6.74 sent down a dollar a bushel compared to a year ago for, December cotton futures looking at $0.70 a pound. month ago we were at, nearly $0.71 a pound.

00;16;45;07 – 00;17;09;22
Dr. Biram
So, pretty much the same, but down slightly, for input for the state level, input prices for your. We’re looking at 480 a ton. for 32-0-0 Look at 530 a ton for DAP 760 a ton potash 465 ton. Iime looking at $55 a ton and diesel looking at a $2.52 a gallon, for the river levels.

00;17;09;24 – 00;17;26;12
Dr. Biram
you know, we’re looking at a level of about -two feet in the year ago, we were, man, -ten feet. And, you know, that critical low water levels we mentioned negative five. I’m not sure. We’ve been talking about the flood stage. but we are trending downward and is the main impact on the super river. So with that, I hope you guys have a good week.

00;17;26;14 – 00;17;38;23
Dr. Biram
as always, feel free to reach us. Reach out to us with, any questions that you have, and and we’ll talk to you next week. Thanks.

00;17;38;25 – 00;17;39;02
Dr. Biram