As if agriculture didn’t have enough Black Swans to cope with it, Tropical Storm Ida may have severely damaged US agribusiness export pipelines just as the autumn harvest combines come into operation.
In retrospect, the similarities to Katrina, who appeared on almost the same day 16 years ago, seem eerie. IDA hit the port area hardest, which provides 59% of the export capacity of Ag export capacity in the US Gulf. And it hit right when the 2021 harvest began – a critical time when agriculture needs its pipeline logistics to move inventory and new crops as they become available.
As a result of this storm and delayed export capacity, cash markets along the river collapsed, spreads widened and traders swayed into a bearish stance.
It could be worse
According to the Coast Guard and shipping sources, a stretch of around 120 km on the Mississippi remained closed to all shipping traffic due to crashed power lines and sunken ships in the river. Mike Strain, commissioner for the Louisiana Department of Agriculture and Forestry, saw barges and at least five ships run aground during a river flyover.
- Cargill Reserve – with no power and extensive damage – was the hardest hit facility with a repair schedule yet to be determined.
- Cargill Westwego had minor sheet metal damage in a few places.
- Bunge Elevator Destrehan was slightly damaged.
- ADM Destrehan’s elevator damaged the control room roof.
- Most of the time ADM AMA and Reserve Elevator appeared to be escaping.
- Bunge Elevator Destrehan was slightly damaged.
- CHS Myrtle Grove has looked at water and needs further investigation.
- LDC Port Allen is currently an elevator with no electricity. It is currently waiting on the Mississippi River to reopen and the ships to return to the elevator for loading.
- Zen-Noh Elevator is working to restore power
The storm damage was bad, but it could have been worse. It appears that when the crews get to the facilities it will be mostly a power and debris problem. This is expected to take two to four weeks. Ships are now being diverted to other loading facilities and, where possible, some shipments are being relocated to the PNW.
All of this to say that export capacity is being reduced, but we are not talking about hundreds of millions of bushels. These bushes are likely to be shipped as soon as the facilities are back in operation, so total year-to-date shipments are likely to end as expected in the long term.
Effects on Grain Markets
With an immediate cessation of demand in the Gulf and paralyzed logistics to move grain downstream, the base along the river either declined sharply or there was no supply. This also put pressure on the domestic markets, and merchandisers are now trying to figure out how they will transport the product during harvest.
Inland freight falls and then rises as river terminals use barges as storage and gain a sense of volume turnover. Futures don’t like uncertainty, so they go down. Added to this are the recent rains and prospects for improved yields at the end of the growing season. Prices are taking away chart support and funds continue to liquidate long positions.
Looking for opportunity
History teaches us that when markets are affected by rogue events, an opportunity arises. When Chernobyl happened, grain markets exploded as supplies became contaminated and scarce. The rally lasted for days and was a selling point. When 9/11 hit, markets collapsed as the world economy imploded; The break was short-lived and an opportunity to buy. There are other examples, but the point is that Hurricane Ida doesn’t change the picture of supply and demand around the world. The logistical problems Ida created on a macro scale are minor; Hence, going on the opposite side of fear is usually a good choice.
We advise you to keep your focus on profitability. Use the AgMarket.Net app and reevaluate your earnings and input costs, run the numbers on all your current sales and see where your breakeven point is. Take a look at the optimizer and see if there is a strategy you should employ to better balance your risk and reward positions.
You are facing a busy week. The market diversion is not something you need right now. Most accidents are the result of a distraction. There’s just no need to distract yourself from work to stress yourself out about the markets.
Most of you have a great fiscal year ahead of you, and for most of you the profitability of the market is still very strong. Although Ida was the perfect storm, its effects won’t last forever and the sun brightens our days after dark. Watch your profitability and stay safe this harvest season.
Contact Bill Biedermann at 815-404-1917 or [email protected]
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