Cash corn prices experienced by farmers decreased by 45 cents, on average, due to the drought-induced low water levels on the Mississippi River in 2012 and early into 2013, according to a recent study funded by the Iowa Farm Bureau in conjunction with the Iowa, Illinois, Indiana and Missouri corn checkoff programs and Indiana soybean checkoff.
The purpose of the study, conducted by Informa Economics, was to document an actual event simulating a prolonged river interruption. Instead of an economic model, the real-world event of low water on the Mississippi River between St. Louis and Cairo, Ill., was examined.
The study revealed that, as a consequence of the unavailability of river shipping, diversion to rail was at a 45-cent-per-bushel premium to barge rates. The 45-cent-per-bushel premium to barge rates encouraged the storage of grain until the river market stabilized or until it is used elsewhere in the marketing chain.
"When you see a 45 cent hit on $7 corn, that’s one thing, but at $4 corn we’re in a different world," said Larry Hasheider, chairman of the Illinois Corn Marketing Board. "Unfortunately, we had some drastically low water on the Mississippi River, and with that we had shipping interruptions and demand destruction to our export markets."
The study illustrates the risks farmers potentially face from a failure on the inland waterways system, such as a failure of a lock and dam, said Hasheider.
The American Farm Bureau Federation (AFBF) highlighted the deteriorating condition of the lock and dam system and urged Congress to act on the Water Resources Development Act (WRDA) last week during a press conference at the Farm Progress Show.
The WRDA legislation would authorize new projects for flood protection, port improvements and upgrades to the nation’s locks and dams infrastructure. Additionally, it would improve U.S. transportation capacity, relieve growing congestion on U.S. highways and foster a more competitive transportation environment.
In addition to legislation being passed, appropriations must also be allocated to fund the bill. WRDA legislation has been approved previously, but no appropriations have been allocated to fund the projects.
"The Farm Progress Show is a display of progress and technology in farming and agriculture. Still, with all of this growth, technology and advancement, farmers, business and industry are stuck working with a river system that hasn’t been updated since the Depression," said Illinois Farm Bureau President Philip Nelson, a member of the AFBF board.
A summary of the Informa Economics study can be found on the Illinois Corn Marketing Board website at www.ilcorn.org.