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>>What happens if the oil slick closes U.S. Gulf ports, the biggest export points for corn, soybeans, wheat?

AgFax.Com - Your Online Ag News Source
By Bob Bailey, DTN

There has been a lot of talk in the past week or so about the oil slick in the Gulf of Mexico and how it might affect grain shipments. A leak triggered by the explosion of an offshore oil rig is pumping thousands of barrels of oil per day into the Gulf and causing the oil slick.

If this slick expands toward the shore and chokes off the main deepwater shipping lane, known as the Southwest Pass, from the Mississippi River into the Gulf, then grain shipments will likely come to a halt. The U.S. Coast Guard is monitoring the slick's progress, as are grain elevator operators and traders. So far, there are no restrictions on vessels moving through the shipping lanes into and out of Gulf ports.

When talking about the Gulf ports in relation to this oil slick, the problem, for now, is contained in the northeastern part of the Gulf that includes the states of Florida, Alabama, Mississippi and Louisiana. For the grain trade, that includes ports in Mobile, Ala.; Pascagoula, Miss.; and all the grain loaders from the lower Mississippi River to Baton Rouge, La. There are several other grain loading ports in the western Gulf that for now are not expected to be affected by this oil slick.

The U.S. Gulf ports are the country's biggest export points for corn, soybeans and wheat. These ports account for 60 percent to 65 percent of the country's total grain export shipments. With this being the case, it is easy to see why it's important to keep these Gulf ports open. There is concern about delays in loading if the oil slick blocks access to ports and arriving ships have to be decontaminated prior to entering the ports. These delays could take a few days, but it is better than closing the ports.

If it comes down to closing the ports, it could cause exporters to divert supplies to other U.S. ports for loading or force them to source grain from other countries, such as Argentina or Brazil. Most of the grain moving into the Mississippi River Gulf ports, including Mobile and Pascagoula, is sourced from the interior river system and moved in barges.

Barges are the most economical method of moving grain in the U.S. from interior locations to export ports. Losing the use of barges would raise the cost of moving grain, and that would be felt in a weaker basis. In order for exporters to divert grain to other ports, they need some lead time, as it has to be done from the origins. In this case, the fear is the Gulf ports will be open one day and closed the next, leaving barges in the pipeline with nowhere to go. Right now, the ports are all open, and all the talk about the ports closing is nothing but conjecture. But, no doubt, exporters have already made contingency plans should port disruption occur.

Changing the method of transportation is never cheap. Many barge loaders in the country are only set up to load barges and have no options to load rail or trucks. That means that once their elevators are filled, they would be forced to close. For others, there are options to load out by other methods, but in most cases, it is probably not economical. They would be able to load trucks and a few rail cars, but they would become less competitive in the marketplace against large unit train shippers, which would likely result in less grain handled.

If the Gulf ports close, the Gulf basis is going to fall, barge freight is going to rise and values at country points will drop. For the barge shipper, this would be expected, but what isn't said is the effect on the rest of the grain market. The Gulf export market is key to determining the value of grain in the U.S. The trend in the Gulf market usually influences the rest of the market. Users of grain -- processors, ethanol plants and feeders -- keep tabs on the Gulf market, and when it weakens, the domestic markets have a tendency to also weaken.

But the situation in the Gulf may not be as dire as we fear, because there is not as much activity as usual. Exports of wheat from the Mississippi River Gulf ports are slow, as that crop year is nearing an end, and the U.S. has had a difficult time being competitive in the world market. Soybean exports have also slowed with export demand shifting to South America. Corn exports are the most active with demand seemingly on the rise and the Gulf supply pipeline growing. However, it is planting season in the Midwest, and farmers are in the fields and not marketing much corn, at least for now. This is keeping the supply pipeline adequately filled but not burdensome.

If any grain has to be diverted, it most likely will be corn. Most of the corn being sold for export is moving into the Asian markets, and with ocean freight spreads at a $30-per-metric-ton, or 76-cent-per-bushel, advantage for grain shipped from the West Coast, it only makes sense to ship from those ports. The problem is elevator capacity from the Western ports is already booked. That doesn't leave much of an alternative other than Texas Gulf ports. The problem is wheat harvest is set to start in the Southern Plains late in the month, and that crop will start moving into those ports. The Texas Gulf elevators are set up to handle wheat and are not going to want to handle corn during harvest.

That brings up another issue for the Mississippi River Gulf ports: Soft red winter wheat harvest will start in the Southern states in a few weeks. SRW wheat markets are closely tied to the Gulf market, and if shipping is delayed or if SRW wheat can not be shipped out of the Gulf ports, it would weaken basis values in the country and beat the market up further than it already is.

It is going to be interesting to see what actually happens in the Gulf. There is talk that it may take several weeks or even months to get the oil spill under control. Hopefully, ships will be able to skirt the spill and access the ports, or, in the worst case, have to be cleaned before entering the ports. In any event, the hope is that this situation is all behind us by fall harvest.



Bob Bailey can be reached at [e-mail]


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