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Published August 26, 2013, 10:43 AM

US farm economy flowing in reverse

The long reach of last summer’s devastating U.S. drought has reversed the flow of the mighty Mississippi River — for corn, at least, with grain-laden barges beginning the rare movement north to Midwest ethanol plants from southern farms.

By: Tom Polansek, Reuters

CHICAGO — The long reach of last summer’s devastating U.S. drought has reversed the flow of the mighty Mississippi River — for corn, at least, with grain-laden barges beginning the rare movement north to Midwest ethanol plants from southern farms.

The shipments come as the U.S. faces a 17-year low in corn supplies by the end of the month as a result of the historic drought, which slashed harvests and sent grain prices to record highs a year ago.

The tight supply is upending the country’s tradition-bound agricultural economy, which is holding its breath in the weeks before an expected record harvest begins sometime next month, following a wet spring and summer.

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 such as Ingredion and Pilgrim’s Pride seek cheaper corn.

“What’s really changing here is the flow of corn,” says Brent Baker, a vice president for John Stewart & Associates, a trading firm. “This is unprecedented.”

The 2013 corn crop is expected to come in at a record 13.8 billion bushels, up 28 percent 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.

But even with a big harvest coming, Mother Nature has added a unique twist: A historically wet spring delayed planting by weeks, and cool wet weather that followed means farmers expect a delayed harvest.

Instead of drought, this year, farmers are worried about an early frost that could wipe out their crops — a new anomaly that would delay a return to normalcy for the farm economy.

“A lot of strange things happen after a drought that has a severity to be the worst one in 80 years,” says Rodney Weinzierl, executive director for the Illinois Corn Marketing Board.

Roughly 1,000 barges carrying newly harvested southern corn will likely travel north by mid-September, according to Baker. A barge trader confirmed that estimate, which would be up about ten-fold from last year.

Demand is intense, as Midwest ethanol producers and processors do not expect local farmers to harvest much corn until early October, weeks later than usual.

“As fast as you can move it from the south to the north, we’re shipping it north,” says Ryan McClanahan, a merchandiser for Commodity Specialists Co., a grain trading and marketing company. “It’s the big thing right now.”

Jeff Duckworth, a corn buyer for ethanol maker Aventine Renewable Energy in Pekin, Ill., says harvest cannot come soon enough. There is “just barely” any old-crop corn left in local markets, Duckworth says.

Help is on the way. In Louisiana, for example, the harvest was 14 percent complete as of mid-August and is expected to total 122 million bushels, up a third from last year, according to the U.S. Department of Agriculture.

Northward bound

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. Corn prices spiked more than wheat prices did after last summer’s drought.

“Usually, our poultry feeders would be hollering for corn, just clamoring for the stuff, but we just aren’t seeing that,” says Shep Bickley, owner of a Cain Agra grain elevator in Arkansas.

Despite the high corn price, demand on the river in the Deep South remains strong. “Our local river terminal was bidding up everybody by far — blowing the door off the (poultry) feeders,” Bickley says.

American Commercial Lines, an Indiana-based barge company, has orders to ship southern corn through the end of August to locations on the Ohio, Illinois and upper Mississippi rivers, and into St. Louis, spokeswoman Kim Durbin says.

Barge companies are equipped to carry grain north because they usually ship fertilizer from the south to Midwest farms. Grain elevators, which are more accustomed to loading corn than unloading it, are having to adapt.

The Illinois and Ohio rivers, which flow through the areas worst hit by last summer’s drought, have already seen increases in upriver barge shipments of food and food products.

Northbound traffic passing through the LaGrange lock, the southernmost on the Illinois River, was up 9.5 percent from a year ago through the end of July.

The U.S. Army Corps of Engineers, which manages the lock system, says the volume moving upriver through the JT Meyers lock on the lower Ohio River, the lock nearest its confluence with the Mississippi, was up 4 percent from a year ago as of the end of July.

Imports surge

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 six-fold 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 metric tons of mostly Brazilian corn in the past year, according to PIERS, a company that provides trading data.

“The drought in the Midwest forced people to look at the supply chain and experiment with different ways to get grain where it’s needed,” she says.

The window is shutting quickly for South American exporters. With the southern U.S. harvest well under way, further import purchases are unlikely. Before the ships can make the two- to three-week sail from South American ports to the U.S., cheaper new-crop prices will begin setting in.

“We’re trying to bridge the gap,” Baker says.