Water levels continued to fall on the Mississippi River leading to concerns that low water levels may shut down or limit barge traffic south of St Louis. The Mississippi River at St. Louis is typically shut down to barge traffic when the water drops below -5 feet, and with NOAA forecasting a -4.5 reading by December 14th, it remains a very real threat of significant disruptions in U.S. grain shipments.
In the past month, basis levels have responded aggressively to potential disruptions. South of Saint Louis at Memphis, basis levels have shot higher by 80 cents a bushel while in Saint Louis, basis levels have dropped by 30 cents a bushel in the last month.
For the corn market, U.S. average basis levels managed to post a modest one-cent gain on the week even in the face of weak exports and a struggling ethanol sector. Weekly ethanol production continued to fall short, suggesting weaker demand for corn than what USDA projects at 4,500 mb for the year. We expect the final corn use number to be closer to 4,375 mb based on current ethanol production and the state of ethanol crush margins. Basis weakness in conjunction with the river has begun to spread west into Iowa as ethanol plants take advantage of limited competition to drop their basis.
In the soybean market, basis levels were up 2 cents a bushel for the week thanks to continued strength in export volumes. Year-to-date soybean exports are 53% ahead of the volume exported this time last year. Strength in basis along the southern Mississippi River and Ohio River region was evident this week as basis levels there climbed 10 cents or more. In the PNW export market, threat of a labor strike continues to cloud the already murky grain shipping industry. Pacific Northwest grain terminal companies have given the longshore union extra time to accept what they say is their best and final offer.
Although northern area basis markets have taken a hit in recent weeks, significant risk still exists for more downside basis weakness. Labor strikes, low water levels, and softening domestic demand could put more pressure on basis in the coming weeks.