What do low water levels mean for your bottom line?

Imagine it’s harvest time and you’re headed to the co-op with a load of corn. You’re in a hurry. You arrive, only to see 15 trucks ahead of you — and a short-staffed scale house. That time you spend waiting costs you money. 

That’s what it’s like when low water levels cause delays on the Mississippi River, as they have for two years. Experts say signs indicate another similar year is not out of the question. 

“We set records in 2022,” says David Welch, development and operations 

hydrologist with the National Weather Service Lower Mississippi River Forecast Center in Louisiana. “We had another low-flow period in 2023 that broke records … just set the year before.”

Compromising competitiveness

Additionally, the Panama Canal has experienced low water levels during the last 12 months. Having both critical waterways compromised has raised shipping costs and hurt American farmers’ ability to compete for export markets against countries such as Brazil. In 2023, for the first time, Brazil exported more corn than the U.S.

Andrick Payen is a grains and oilseeds analyst with the agribusiness financial services provider Rabobank. He says that last October, when exports normally would start picking up, barge rates began increasing, as shippers contended with the low water levels. Yet, he notes the rates didn’t increase as much as in 2022, partially because demand was not as high. 

Payen blames high American prices and transportation costs for the U.S.’s competitive loss and lower exports.

Paradoxically, Bobby Martens, Iowa Institute for Cooperatives endowed professor of economics, says the U.S.’s struggle to compete with Brazil has eased the low water levels’ impact. 

“The whole transportation piece would be felt so much more if we were really competitive with our exports right now,” Martens says. “This would be on the news everywhere right now if we were really in the position that we were in, say, 10 years ago.” 

Martens says that when shipping costs go up, it hurts the basis price farmers receive. 

“Massive amounts of agricultural products are produced in relatively small areas globally; the only reason those have value is because they [are sent] someplace else,” he says. “Managing basis becomes really important.”

Recalculating routes

Xinnan Li, a packaging and logistics analyst with Rabobank, says shippers respond to the Panama Canal low water levels by rerouting bulk grain shipments elsewhere, whereas containers get through more easily. 

Martens says grain shipments take a back seat because they are not as valuable. 

“Ag commodities are relatively low-valued compared to products in containers,” he says. “Cost pressure makes it more difficult for bulk-grain shippers to bid on spaces to go through the canal. If you think about going down the Mississippi River and accessing Asia, the canal is a critical link that saves several days of transit.”

Columbia Grain International is a global commodity supplier based in the U.S. Pacific Northwest. Joe Foley, the company’s commodity trading manager for corn and soybeans, says countries on South America’s west coast normally import via vessels traveling the Mississippi River and the Panama Canal. But the water-level-caused delays, costing as much as $25,000 a day, make it more economical to import from the Pacific Northwest.

“There’s been such problems with the Panama Canal that we’re actually loading boats that are going to those destinations off the West Coast, which is just unheard of,” he says. “We’re shipping stuff to El Salvador, Nicaragua, Guatemala, [and] Columbia.”

Check the forecast

Although it’s too early to be sure, forecasters say another autumn of low water in the Mississippi River is still possible. 

“Right now we’re calling for a year of average to below-average river levels and flows on the lower Mississippi River,” says Welch of the National Weather Service. “Part of that is because on the upper Mississippi and the Missouri, even though they don’t contribute as much volume, they’ve had a record low amount of snowpack this year. There’s virtually no flow contributions from snowmelt this year. 

“... And then, the Ohio River basin has also been somewhat dry so far this year…. If we get a large enough storm system that goes through and drops enough rain, we could still get the Mississippi River to flood. But it would probably be a shorter-duration flood than [if] we had the combined rainfall with snowmelt.”

Welch says in early March, the National Weather Service was predicting average to below-average rainfall through May but it was too soon to forecast summer conditions. 

Andy Schimpf, operations project manager for the Army Corps of Engineers’ Mississippi River Project, says from 2022 to 2023, the corps was more proactive with dredging, and they are preparing for similar water levels this coming fall and winter. 

Rabobank’s Li says problems may persist in the Panama Canal. As farmers prepare for the 2024 crop, she says it is important to line up logistics early because demand could recover but water levels may not.

“You have to plan for the worst,” Schimpf summarizes.