By TIM ALEXANDER
BLOOMINGTON, Ill. — Concern is rising over the possibility of a major railroad union strike that could further erode soybean basis and farmer profitability as the 2022 harvest ends. NBC News reported that negotiations had soured between rail workers and companies just ahead of the Monday, November 21 deadline to ratify a new contract that could fend off a threatened December labor strike of thousands of employees affiliated with three major railroad unions.
The concern comes on the heels of historic low water levels on the Mississippi River in October that greatly affected the volume of barge shipments of corn and soybeans during harvest, along with movements of agricultural inputs and products. Rising costs associated with restricted barge shipments lowered the price paid for soybeans and negatively affected soybean basis, according to the USDA Office of the Chief Economist.
In addition, the potential of a railroad work stoppage can negatively affect the agricultural supply chain because movements of dangerous or volatile products — such as fertilizers and chemicals — are suspended by shippers in the hours leading up to a strike deadline.
“With the barge transportation issues on the Mississippi River, we’re really concerned (a railroad strike) could back things up in a really bad way,” Rich Gebhards, Director of Governmental Affairs and Commodities, told Farm World. “If you compound this by not being able to move things by rail, it could get really bad in terms of getting grain moved.”
To avoid a “devastating” setback in terms of transportation logistics, Gebhards is urging farmers to reach out to their congressional representatives to intervene in rail negotiations to avert a strike. This is what occurred during the last rail strike in April 1991, when Congress took less than 24 hours to force a settlement between workers and owners.
“The impact of a rail strike, not just on ag but obviously on all industries, would be pretty devastating. So it’s a big deal, especially with these low water levels and limited barge movements,” Gebhards said.
USDA: barge shipping rates soared
A recent report issued by the USDA Office of the Chief Economist and published by the University of Illinois farmdocDAILY website examined the financial effects of record low water levels in the Mississippi River Basin. The report came after the Mississippi River water stage in Memphis, Tennessee, fell to a record of –10.79 feet on Oct 17, below the previous low set in July 1988.
“As river levels fall, barge operators must reduce the draft, and thus the load of each barge. In addition, as the channels narrow, operators must also reduce the size of the tow (the number of barges lashed together),” the authors wrote. “Historically barge rates have hovered around $20 per ton. In the beginning of September, as the Mississippi River began to fall to record low levels and closures and disruptions started to mount, barge rates rapidly began increasing upwards. The St. Louis barge spot rate hit a record $106 per ton during the week of Oct 11. This spot rate had eased slightly during the second week of October, however (the rate) picked up once again during the most recent week of Oct. 25 rising to $88 per ton.”
The report explains how for farmers, a key concern of the low Mississippi River issues is the impact on “basis,” or the difference between the price paid to producers in a local market and the price of nearby futures contracts listed at the Chicago Board of Trade (CBOT). “A transportation disruption such as the one we are experiencing now will weaken the basis if it increases shipment cost (either through higher barge rates or forcing local elevators to use alternative costlier shipment options), leading purchasers to reduce their cash market bids,” according to the report.
STC: consider alternate barge route
The low water problem is causing shippers to consider alternative barge routes, according to Mike Steenhoek, executive director of the Soy Transportation Coalition.
“The low water levels throughout the inland waterway system, unreliable rail service – exacerbated by the threat of a railroad strike…truck driver shortages, and port congestion are all seeming to conspire to impede the ability of farmers to connect with domestic and international customers,” Steenhoek noted in an email. “One of the cardinal rules regarding supply chains is to avoid ‘putting all your eggs in one basket.’ When a shipper can access a variety of transportation modes and providers, the more competitive that shipper will often be in serving its customers.”
That’s why Steenhoek has been touting the Great Lakes-St. Lawrence Seaway, a deep draft waterway extending 2,340 miles from the Atlantic Ocean to the head of the Great Lakes at Duluth, Minnesota, as another option for farmers to access international customers. “The Seaway is open for business and is willing and able to be an effective lifeline for farmers and agricultural shippers in a number of regions of the country,” said Steenhoek, adding that a number of key soybean-producing states are adjacent to the Seaway.
Those states include Illinois, Indiana, Ohio and Michigan.
An agreement between the Soy Transportation Coalition and the Great Lakes- St. Lawrence Seaway has resulted in a toll reduction for new users of the waterway, Steenhoek announced.
“Multiple U.S. soybean and agricultural exporters can avail themselves of the toll reduction. To be eligible for the toll reduction, cargoes must currently be moving between a specific origin and destination via another supply chain route,” he said.