With corn supplies at a 17-year low and harvest delayed, ethanol producers are outbidding southern corn buyers and sending a fleet of barges northward
Reuters / The long reach of last summer’s U.S. drought has reversed the flow of the mighty Mississippi River — for corn, at least.
In a rare move, corn-laden barges are heading north to Midwest ethanol plants from southern farms.
Although a record harvest is expected this year, much of it will be late and, in the meantime, the U.S. will hit a 17-year low in corn supplies by the end of the month.
Grain, which typically flows south on the river to export markets, is heading north from states such as Louisiana and Arkansas, where farmers begin harvesting earlier than their Midwestern counterparts. Normally, much of that grain would ship overseas, but after prices climbed following the drought, exports are set to drop to a 41-year low.
Ocean-going vessels are reversing course too, with record U.S. grain imports expected from countries such as Brazil and Canada as U.S. processors like Ingredion and Pilgrim’s Pride seek cheaper corn.
“What’s really changing here is the flow of corn,” said Brent Baker of trading firm John Stewart & Associates. “This is unprecedented.”
The 2013 corn crop is expected to come in at a record 13.8 billion bushels, up 28 per cent from last year. If that happens, supplies will build to an eight-year high, making the famine-to-feast reversal the largest annual swing in more than half a century.
Still, roughly 1,000 barges carrying newly harvested southern corn will likely travel north by mid-September, according to Baker. Demand is intense as Midwest ethanol producers and processors don’t expect local farmers to harvest much corn until early October, weeks later than usual because of a wet spring and cool summer.
The reverse flow northward is being primed by high bids for corn in the Midwest cash markets. A grain elevator in Lake Village, Ark., along the Mississippi River, was bidding $4.41 for first-week August delivery, while a processor in Cedar Rapids, Iowa, was offering $6.01 — a difference that is more than enough to cover transportation costs from south to north.
Demand on the Mississippi for corn is pushing prices to a point that poultry feeders are switching to wheat, which is less expensive.
“Usually our poultry feeders would be hollering for corn, just clamouring for the stuff, but we just aren’t seeing that,” said Shep Bickley, owner of a Cain Agra grain elevator in Arkansas.
“Our local river terminal was bidding up everybody by far — blowing the door off the (poultry) feeders.”
Coastal markets are adjusting to their own sense of dislocation.
Hog and poultry operations in the southeast and along the East Coast have found foreign supplies cheaper than rail-delivered grain from the Midwest. Overall, the U.S. is set to import a record 165 million bushels in the year ending Aug. 31, a nearly sixfold increase from the previous year, according to USDA.
Wilmington Bulk LLC, a feed-buying consortium of hog and poultry producers, has brought in more than 350,000 tonnes of mostly Brazilian corn over the past year, according to PIERS, a company that provides trading data. Pilgrim’s Pride imported more than 175,000 tonnes through the Port of Mobile, Alabama, between Feb. 8 and June 3.