US Gulf river woes squeeze elevators as exporters look to boost corn

Fresh issues on the Mississippi river network running into the US Gulf export hub, and a lack of demand for US corn, is pressuring exporters’ margins as the relatively high price of CIF delivered barges squeezes the cost of building FOB export cargoes from the barge market.

“Barge premiums are inverted due to shoaling and low water issues in the south. It’s a slow turnaround on those barges and thus that shrinks the fleet,” one market source said, referring to a dynamic that is cutting the availability of barges and supporting the price for delivered corn.

US Gulf CIF delivered barges were heard bid at 36 cents for October arrivals and 43 cents for November over the December contract, with FOB cargoes heard offered at 44 cents for October loading and 50 cents for November.

The cost of building cargo volumes from the barge market is known as the elevator margin and should cover the cost of moving the corn from the barge to the elevator and then on into the cargo ship.

The cost, sometimes referred to as the fobbing cost, typically averages around 10 cents a bushel, meaning FOB cargoes should typically trade at least 10 cents above CIF barges.

However, margins for October and November are already around 6 cents and 5 cents respectively, with pressure on bulk exporters to offer cargoes at levels that will tempt buyers.

“I’ve seen sellers willing to look at handysize cargoes for September… it implies that there isn’t too much moving,” a second market source said, with US exporters said to be looking to load smaller cargo sizes in order to secure business.

“They have cleaned up the problems left over from the spring and summer and now they need to attract new demand, so they start by reducing the fobbing margins. When/if the demand returns, they will start to increase these margins,” the first source said.

However, with South America still chowing through a huge combined corn crop of around 150 million mt, split between Brazil and Argentina, and with Ukraine likely to start harvesting another huge corn crop from September, the US continues to face stiff international competition.

The USDA’s 2018/19 estimate of 53.34 million mt of exports is likely to be missed, with the current commitment standing at 47.9 million mt with just days remaining in the marketing year.