Mississippi River drought blues

And now for a fast break in your regular Fed-and-jobs-week programming . . . 

It’s superb information that Ukraine’s grain shipments are resuming, as a result of the US midwest is grappling with a drought. That has made components of the Mississippi River too shallow for the traditional tempo of barge site visitors transporting grain from the Illinois breadbasket to the Gulf Coast for export.

Spot charges for river barges have soared to the very best stage in a long time, based on a observe from Goldman Sachs:

And the costs of grain crops (corn, soyabeans and wheat) are comparatively low inland in comparison with the gulf coast:

This is one among a few occasions which have unexpectedly added friction to the export of sure US commodities this 12 months.

Goldman Sachs argues that the drought most likely received’t have an enduring affect on international demand for US grains. First, international demand for grains (aside from soyabeans) has additionally fallen this 12 months, so consumers received’t be compelled to hunt out new sources. Second, the drought has additionally affected the provision of grains, so the back-up on the Mississippi isn’t similar to the containership jams which have periodically occurred outdoors of main US ports this 12 months.

None of this looks like particularly excellent news for international meals costs! But at the least the Midwest can get their bread laborious winter wheat for reasonable, as proven within the chart above.

Unfortunately, the Mississippi River drought additionally may sluggish exports of one other vital commodity that makes its method all the way down to the Gulf Coast from Illinois: thermal coal. Illinois’ thermal coal exports are largely utilized in Europe for heating.

This constitutes 0.6% of complete seaborne coal exports, and is anticipated to have restricted affect. The European benchmark for thermal coal, API2, truly offered off by $19 final week at $239/t, as European storage stays at wholesome ranges. This dynamic may also be noticed within the nonetheless extensive open $140 unfold between API2 and Newcastle coal costs . . . Should the disruptions be sustained, there might be a marginal rerouting to the home market, however it stays too early to look at it. The home market must also keep largely unaffected, as solely 2 energy crops have been receiving coal by barges, and each have rail supply options out there.

Luckily European coal shops haven’t been drawn down a lot but, because of an unusually heat autumn. But we’re left hoping that the Midwest will get its much-needed rain earlier than the euro zone begins to get colder.