Drought increasing river shipping costs
There has been limited attention paid to how the drought is lowering transportation river levels. Lower water levels are impacting the cost of barge shipping for fertilizers coming up the rivers and grain going down rivers, as well as many other agricultural goods going up and down the rivers.
“With the drought now dropping water levels on nearly the entire river system, barge rates have begun to pop,” it was noted in the Friday Doane’s Agricultural Report. Barge rates “bottomed out the last week of June and have jumped sharply since, rising 16 percent last week alone to put the rate on the Illinois river above the rolling three-year average, for the first time since last October.”
It isn’t strictly a supply and demand situation that sets barge rates but supply effectively becomes tighter when more barges are needed to hall the same amount of weight. And when river levels drop, barges cannot be as fully loaded as when river levels are average or higher. This subtle difference in weight hauled per barge increases the transport cost per ton of fertilizer and per bushel of grain.
The price paid to farmers is much less than the board of trade price as the basis increases due to river transport cost.
River rates also have an impact on railroad shipping rates because the railroads are going to take advantage of charging more because there isn’t a cheaper river option.