The severe to exceptional drought choking the lower Mississippi River valley is expected to improve this winter as the El Nino weather pattern brings better rains to the region, NOAA said in its U.S. winter weather outlook.

But lingering drought in the upper Midwest and forecasts for normal to below-normal precipitation across basins that supply tributaries such as the Illinois and Ohio rivers could slow the Mississippi River’s recovery.

Low water has slowed export-bound barge shipments of grain from the Midwest farm belt for a second straight year during the busy fall harvest season, making U.S. exports of corn and soybeans less competitive in the world market.

“We are expecting improving drought conditions for the lower to middle Mississippi Valley during the next few months. But for the hydrological impacts such as low river levels and low ground water levels, that will be a little slower to recover,” said Brad Pugh, operational drought lead with NOAA’s Climate Prediction Center.

“The hydrological impacts could linger beyond the end of January,” he said.

The Mississippi River fell to an all-time low on Monday at the Memphis, Tenn. river gauge, eclipsing the previous low water record set nearly a year ago, according to National Weather Service data.

Shallow river conditions prompted barge shippers to restrict the amount of grain they haul to avoid getting stuck in the drought-parched waterway.

Still, areas of the lower Mississippi River have been closed to navigation at times over the past several weeks following vessel groundings or as U.S. Army Corps of Engineers crews dredged low spots to deepen the channel.

— Karl Plume reports on agriculture and ag commodities for Reuters from Chicago.

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Drought, which currently spans 59 per cent of the country, is expected to continue or worsen in the middle and lower Mississippi River valley as well as in much of the West and the Great Plains, the National Oceanic and Atmospheric Administration’s (NOAA) Climate Prediction Center said in its winter (December-February) outlook.

Above-average precipitation, however, expected in the Midwest and the Ohio River valley may provide some relief to the drought-parched waterway later in the winter, NOAA said, citing the effects of a third consecutive winter of La Nina, a climate phenomenon that alters weather patterns.

Water levels on the Mississippi River dropped to historic lows this autumn, at times halting barge shipments of grain, fertilizer, coal and other commodities on the major shipping waterway and revealing a century-old shipwreck.

Some 60 per cent of U.S. grain exports exit the country via the Gulf Coast. Crucial shipments of fertilizer, farm chemicals and road salt that move up the Mississippi River ahead of the winter have also been disrupted.

“Across the lower Mississippi Valley, we are favouring continuation of below-normal precipitation,” said Jon Gottschalck, chief of the Operational Prediction Branch of NOAA’s Climate Prediction Center.

“That would certainly, if the prediction is realized, lead to continued low water levels and exacerbate drought conditions there.”

NOAA forecasters are also predicting drought conditions would persist or worsen in the West and in the southern Plains farm belt, where farmers are struggling to plant their winter wheat crop due to excessively dry soils.

Nearly 90 per cent of Kansas, the top U.S. wheat-producing state, is under some level of drought, the worst in at least eight years, according to National Drought Mitigation Center data.

— Karl Plume reports on agriculture and ag commodities for Reuters from Chicago.

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The supply chain snarl comes just as harvesting of corn and soybeans, the largest U.S. cash crops, is ramping up and as tight global supplies and strong demand for food and fuel have sent inflation soaring.

Around 100 tow boats hauling some 1,600 barges were lined up for miles waiting to pass through one trouble spot near Lake Providence, in northeastern Louisiana, that has been largely closed since late last week, shipping sources said.

At least two other sections of the lower Mississippi have also been closed at times, disrupting the flow of grain to U.S. Gulf Coast export terminals, where some 60 per cent of U.S. corn, soybean and wheat exports exit the country, they said.

The U.S. Army Corps of Engineers is dredging the river to deepen the shipping channel to allow some cargo to pass. But shippers fear that without substantial rain the jam will persist well into the busiest grain export period of the year. Products such as road salt are also hauled north ahead of winter.

“Mother Nature hasn’t been very helpful, and there’s not a lot of relief in sight in the weather forecast,” said Merritt Lane, CEO of barge operator Canal Barge Co.

Shippers have been loading less cargo per barge so vessels sit higher on the water, and towing companies have reduced the number of barges per tow by nearly 40 per cent as the low water conditions narrowed the navigable channel.

Many U.S. Gulf exporters have pulled offers for corn and soybeans loaded in October and November as it is unclear if they can source enough grain, threatening already sluggish export sales.

“We can’t commit to new sales right now,” one exporter said.

— Karl Plume reports on agriculture and ag commodities for Reuters from Chicago.

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For decades, cargo ships have paid tolls directly to the private dredging company in charge of keeping the river open.

Industry executives worry that government intervention in the waterway will heap bureaucracy and extra costs on the grains export sector, which is the main source of hard currency needed to refresh central bank dollar reserves strained by a three-year recession exacerbated by the COVID-19 pandemic.

Grains powerhouse Argentina is the world’s No. 3 corn exporter and top supplier of soymeal livestock feed, used to fatten hogs and poultry from Europe to Southeast Asia.

The National Ports Administration has been given authority over the next 11 months to subcontract management of the waterway, while the transportation ministry evaluates bids from dredging companies for the long-term concession to follow.

“The strengthening of policies on the management of inland waterways is a priority objective of the national executive,” the government said in a decree published on Wednesday.

The tolls paid by ships for dredging services performed by the company that wins the upcoming Parana contract will be received by the newly established agency, the decree said.

“This decree looks like the government does not only want to set up conditions for the tender and the dredging tariff. It looks like an excess of bureaucracy that might mean additional costs for export operations on the river,” said Gustavo Idigoras, head of the CIARA-CEC export companies’ chamber.

“We welcome the idea of having a control agency, but we are concerned about additional bureaucracy and costs. So we need to have close conversations with the government,” Idigoras said.

A transportation ministry source, who asked not to be named, said the new dredging oversight board could actually make it less expensive to ship grains from Argentina.

“The price of tolls paid by cargo ships to the dredging company is something that will be determined in the bidding process. The tolls could end up going down,” said the source. “One of our objectives is to lower logistics costs.”

This is the latest chapter in a long saga of farmers and exporters opposing government intervention in the sector.

The dredging of the Parana gives Argentina an edge over rival exporters Brazil and the U.S., which rely more on less efficient trucks and slow-moving barges.

The new agency has inflamed exporters and farmers already worried about the policies of centre-left President Alberto Fernandez, a Peronist whose administration has curtailed beef exports as a way of controlling domestic food price inflation.

The industry is fretting that if the flow of toll money goes through the state, it would dilute and increase dredging costs.

The river at Rosario is dredged to about a depth of 10 metres, and industry leaders want the next long-term contract to provide for a deeper, wider shipping channel.

— Reporting for Reuters by Hugh Bronstein and Maximilian Heath.

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The Coast Guard said the river is open to all vessel traffic without restrictions, after traffic was halted on Tuesday because of a fracture in the Hernando DeSoto Bridge that carries cars and trucks on Interstate 40 over the river.

The fracture and disruption in river shipments put a spotlight on infrastructure needs as President Joe Biden seeks congressional approval for a US$2.25 trillion infrastructure bill.

“Based on information provided to us by the Tennessee Department of Transportation, the Coast Guard has determined that transit under the I-40 bridge is safe for maritime traffic,” said Coast Guard Capt. Ryan Rhodes, captain of the Port of Memphis.

The reopening will begin to ease a jam of 62 vessels with 1,058 barges that were waiting to pass through the closed area, according to the Coast Guard.

Clearing the backlog may take close to 48 hours, said Mike Steenhoek, executive director of the Soy Transportation Coalition, an agricultural industry group.

The river closure rattled the farm sector because global corn and soybean supplies are tight and prices are near eight-year highs due to strong demand.

Almost all grain barges must pass beneath the DeSoto bridge on their way to Gulf of Mexico export facilities near New Orleans after being loaded along the upper Mississippi, Ohio, Illinois or Missouri rivers, according to the coalition.

“It is my hope that this situation will further galvanize efforts to produce a comprehensive infrastructure investment strategy that addresses the needs of both urban and rural America,” Steenhoek said.

— Tom Polansek reports on agriculture and ag commodities for Reuters from Chicago.

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The shutdown fueled concerns about shipping U.S. grain and soy to export markets at a time when global inventories are slim and prices are near eight-year highs. U.S. corn futures sank more than five per cent in a setback from the lofty prices.

At the spot where the river is closed, 26 vessels with 430 barges are waiting to pass north and 21 vessels with 341 barges are in the queue to go south, said Petty Officer Carlos Galarza, a Coast Guard spokesman.

A day earlier, a total of 411 barges carrying crude oil, dry cargo such as crops, and other materials were backed up in both directions.

The Tennessee Department of Transportation must finish investigating the bridge before a decision is made to reopen the river, Galarza said.

Tennessee officials hope to “have a decision for river traffic” in the next day or so, said Nichole Lawrence, a spokeswoman for the state Department of Transportation. She said a timeline has not been determined and the bridge is still under inspection.

The Coast Guard stopped all traffic on the river near Memphis on Tuesday between mile markers 736 and 737 after a fracture was discovered in the Hernando de Soto Bridge that spans the river.

Almost all grain barges must pass beneath the bridge on their way to Gulf of Mexico export facilities near New Orleans after being loaded along the upper Mississippi, Ohio, Illinois or Missouri rivers, according to the Soy Transportation Coalition, an agricultural industry group.

Grain traders said they expect river traffic to resume within days. However, shippers are not booking barges for this week and next week because the closure has left them uncertain barges will be available, barge sources said.

— Reporting for Reuters by Tom Polansek in Chicago; additional reporting by Julie Ingwersen.

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Green Plains filed the proposed class action with the U.S. District Court of Nebraska, where it also claimed that senior ADM officials knew of the alleged manipulation.

ADM told Reuters in an email statement that the company does not comment on pending litigation.

The lawsuit seeks unspecified damages. It follows reporting by Reuters that ADM’s ethanol selling had led traders to complain to S+P Global Platts, which provides benchmark pricing for the physical ethanol contract at different U.S. delivery points.

According to the complaint, ADM was aggressively selling ethanol on the cash market at the Argo terminal just outside of Chicago — and timing such selling 30 minutes ahead of the close of the trading day.

Green Plains also said ADM flooded the terminal with its barges, to choke off competitors’ supplies and influence the price of spot and futures ethanol markets.

ADM “knew that it would take hard-earned money out of the pockets of other ethanol producers by depressing prices at the Argo Terminal, hurting the producers and imposing downstream pain on corn farmers and co-operatives,” according to the complaint.

A similar lawsuit was filed last September by AOT Holding AG, a Swiss company with an energy trading subsidiary, in an Illinois federal court, seeking up to US$6.33 million in damages.

— P.J. Huffstutter reports on agriculture and agribusiness for Reuters from Chicago.

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ADM and Bunge, as well as peers Cargill and Louis Dreyfus, known as the ABCD quartet of global grain trading giants, faced processing-plant downtime, rail and barge shipping delays and other supply uncertainty this spring as historic floods ravaged the central U.S.

The weather woes are heaping more pain on the battered U.S. agricultural sector already hard-hit by a years-long crop supply glut and the U.S.-China trade war now entering its second year. The tariffs China imposed on soybean exports from the United States in retaliation for U.S. duties on Chinese goods curbed shipments of the most valuable U.S. export crop.

The excessive rains and flooding could also have a lasting impact on the grain merchants, whose latest round of quarterly earnings will start this week. ADM and Cargill are viewed as particularly vulnerable due to their outsized U.S. footprints. Reduced U.S. corn and soybean plantings will likely cut available crop supplies in the United States, potentially driving up raw material costs and squeezing margins.

“They thrive on volumes and margins and both of those are going to be depressed in the coming year with the bushels being smaller and the margins likely not being there,” said Kevin McNew, chief economist with Farmers Business Network. “Export business is just going to fall off the cliff, especially for corn.”

The U.S. corn crop was more affected by floods than soybeans, because soy can be planted later in the season.

Weaker results

The first of the companies scheduled to report is privately held Cargill, which announces fiscal fourth-quarter earnings on Thursday.

The results will cover the March-to-May period, when flooding disrupted grain movement, including export shipments, and the year’s second “bomb cyclone” blizzard temporarily shuttered at least six Cargill grain handling facilities and a beef processing plant.

Cargill and ADM both own barge companies that haul grain and other products on the Mississippi River and its tributaries. Grain barge movement so far this year is down about 37 per cent from a year ago, according to U.S. Army Corps of Engineers data, due largely to prolonged river closures triggered by floods.

Cargill is expected to report weaker results compared with the very strong earnings of the year-ago quarter, due partly to expected lower profit in its origination and processing unit, said Bill Densmore, senior director of corporate ratings at Fitch Ratings.

Bunge and ADM will follow, with second-quarter results covering April, May and June scheduled for release on July 31 and Aug. 1, respectively. Privately held Louis Dreyfus is expected to issue interim first-half results in the autumn.

Shares of publicly traded ADM and Bunge are hovering just above three-year lows notched this spring as mounting concerns about U.S. plantings and trade fueled investor nervousness.

Uneven impacts

With its concentration of assets in the United States and its large U.S. ethanol business, ADM was likely hit harder by adverse U.S. weather than Bunge, analysts said.

ADM cited poor U.S. weather for a nearly $60 million drop in operating profit in its first quarter and warned in April that lingering weather impacts would cut second-quarter earnings by $20 million to $30 million (all figures US$). Some analysts expect ADM to post as large a hit to second-quarter earnings as in the first quarter as adverse weather stretched through the spring season.

“ADM’s first-quarter estimate of $50-60 million seems like a good starting point” for the second-quarter impact, said Seth Goldstein, analyst with Morningstar.

ADM’s soy processing, ethanol and sweeteners and starches units may post lower margins, and smaller corn and soybean crops will hurt its grain origination business, said Heather Jones, founder and senior analyst with Heather Jones Research LLC.

The price of corn, the most common feedstock for U.S. ethanol makers, has surged as U.S. farmers struggled to plant the 2019 crop due to a historically soggy spring. Cash corn premiums in parts of the eastern Midwest, where planting delays were most acute, are at a six-year high. Soybean prices hit a one-year top last week.

“Bunge is less exposed, but higher bean costs would squeeze soy crush margins in the U.S.,” Jones said. Bunge is the world’s largest soybean processor.

— Reporting for Reuters by Karl Plume in Chicago.

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The historic March floods have dealt a series of blows to large swaths of an ethanol industry that was already struggling with high inventories and sluggish domestic demand growth. And the ethanol shortages are one factor pushing gasoline prices in Los Angeles and southern California to the highest in the nation and they could top $4 a gallon for the first time since 2014, according to tracking firm GasBuddy (all figures US$).

Benchmark price for ethanol used in most supply contracts initially jumped on news of the floods but has been hobbled by rising waters around the Chicago hub that have halted barges and sales. That stands in contrast to prices on the coasts, which rose dramatically — drawing in heavy imports from Brazil, the main U.S. ethanol competitor.

The floods inflicted billions of dollars in damage to crops and homes in the U.S. Midwest, and knocked out roughly 13 per cent of ethanol capacity.

U.S. ethanol is made from corn and required by the government to be blended into the nation’s fuel supply to reduce emissions.

While some ethanol plants were flooded, the primary effect of the rising waters was to shut rail lines that serve as the main arteries for corn and ethanol deliveries.

Ethanol prices on the coasts spiked due to shortages, but Midwest producers have been unable to take advantage because of washed-out rail lines, market sources told Reuters.

“Unfortunately for anyone who was impacted by logistics issues it was a double whammy. You couldn’t capture the rally,” said one trader.

At Chicago’s Argo terminal, the nation’s main ethanol pricing hub, the cash price for ethanol fell for an eighth straight session last week to $1.29 a gallon, the longest downward skid since April of last year, according to Oil Price Information Service, which does daily assessments.

Initially, fears of widespread plant outages boosted that benchmark, but plants proved more resilient than expected, continuing to produce despite logistical challenges.

U.S. ethanol inventories were at 24 million barrels for the week ended March 29, just off a record hit a week earlier, according to U.S. Energy Information Administration data.

Chicago’s price acts as the benchmark for millions of barrels bought and sold via longer-term supply contracts each day. While that price faltered, ethanol prices at the coast have surged, helping plants owned by Pacific Ethanol and White Energy in California and Texas to take advantage of higher prices.

Ethanol delivered into Los Angeles typically trades at 20 cents a gallon higher than Chicago, but that premium rose to as high as 50 cents a gallon, traders said. The price in New York Harbor was at roughly double normal levels, traders said.

The tight ethanol supplies, along with refinery outages, boosted retail gasoline prices and led to some gas station shutdowns in the West as blenders there lacked the ethanol needed to blend with gasoline to make fuel that meets government regulations.

Gas prices in Arizona averaged $2.89 per gallon on Monday, 17 per cent higher than last month, according to the American Automobile Association. Prices were even steeper in California at $3.80 a gallon, well above the national average of $2.74 a gallon.

Cash prices in the state’s physical market suggest further increases. In Los Angeles, spot gasoline on Monday was offered 10 cents a gallon higher from where it traded on Friday, putting it at a premium of 69 cents a gallon above the NYMEX futures benchmark.

“Ultimately, Los Angeles could get close to seeing that average at $4 a gallon,” Patrick DeHaan, head of petroleum analysis at tracking firm GasBuddy, said, adding that much of that increase will come because of refinery outages in the state.

At least one county in California has already surpassed $4 a gallon. The highest recorded average price for the state was $4.67 a gallon, in October 2012, according to AAA.

The high coastal prices attracted barrels from the biggest U.S. competitor: Brazil. Overall ethanol imports to the United States totaled 558,279 barrels in March, the most seasonally since 2013, according to Refinitiv Eikon ship tracking data. Most of the imports during the month came from Brazil, according to the tracking data.

— Reporting for Reuters by Jarrett Renshaw and Stephanie Kelly; additional reporting by Erwin Seba.

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Record floods have devastated a wide swath of the farm belt across Iowa, Nebraska, South Dakota and several other states. The waters have idled ethanol plants, slowed rail shipments of agricultural products and swamped storage bins holding grain from previous harvests.

The disruptions come as the U.S. agriculture industry is grappling with the trade war between Washington and Beijing, which slashed shipments of U.S. farm products to China.

For ADM, the floods are affecting two crucial business units; origination, which buys, stores and transports grains, and carbohydrate solutions, which mills corn and wheat, the company said. The US$50 million to $60 million impact on pre-tax operating profit will be roughly equal between the segments, with minor impacts to other units, ADM said.

“Extreme winter weather has affected our first quarter North American operations beyond what we would experience in a typical winter,” ADM said.

With rail lines washed out, and corn in storage flooded, production of ethanol has declined.

ADM’s corn processing complex in Columbus, Neb. was idled due to flooding and is running at reduced rates, the company said.

Unfavourable conditions on U.S. rivers since December are also severely limiting barge transportation movements and port activities, according to ADM.

Key rivers were swollen from flooding and ice buildup.

— Reporting for Reuters by Tom Polansek.

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