Author: Hunter Biram

Extreme weather events, like drought, jointly impact agricultural production and rural infrastructure, including transportation infrastructure. An important part of this transportation infrastructure is the Mississippi River. It serves as one of the most critical networks for moving agricultural commodities from production to consumption areas, including export markets. In 2020, U.S. agricultural exports totaled $146 billion, increasing 7 percent year over year (U.S. Department of Agriculture’s Foreign Agricultural Service, 2021). Approximately 46 percent of grain exports were moved by barge in 2020. Soybeans, the leading U.S. agricultural export, rely heavily on barge transportation, with 53 percent of exports and 28 percent of total supplies moved by barge in 2020.

Despite this reliance on barges for moving U.S. grain, little is known about the link between extreme weather, rural transportation infrastructure, and crop prices. In 2022 and 2023, the Lower Mississippi River reached historic lows. In October, the U.S. Geological Survey (USGS) Memphis stream gauge read -12.0 feet and -10.8 feet in 2023 and 2022, respectively. The previous record was set in 1988 when the USGS Memphis stream gauge read -10.7 feet. These record-low water levels increased transportation costs and barge freight rates as documented by previous Southern Ag Today articles (Biram, et al., 2022; Gardner, Biram, and Mitchell, 2023; Biram, Mitchell, and Stiles, 2024). Higher transportation costs are transmitted to row crop producers through lower cash bids or a weakening of local crop basis (calculated as the cash price minus the futures price). Historic lows in Mississippi River levels during the fall harvest of the last three years have highlighted the need to measure the impact of these low river levels on rural infrastructure and communities.

Mitchell and Biram (2025) measure the impact of low water levels on the Mississippi River using Arkansas soybean basis data across 12 regional grain markets from USDA’s Agricultural Marketing Service and stream gauge data from USGS. They use a “low river” status measure that affects a grain market once the river gauge height falls below negative five feet and is weighted by the distance between a grain elevator and the closest public Mississippi River port.  They find that when the river stream gauge in Memphis, Tennessee reads -5 feet, Arkansas soybean basis weakens (widens) by $0.58 per bushel, $0.29 per bushel, and $0.12 per bushel for grain markets that are 5 miles, 10 miles, and 25 miles from the closest Mississippi River port, respectively. Similarly, they find that Mississippi soybean basis weakens (widens) by $0.55 per bushel, $0.28 per bushel, and $0.11 per bushel for the same distances to grain markets. Figure 1 below shows the degree of the impact of low river levels on soybean basis in Arkansas with markets near the river experiencing weaker basis than of those further from the river.

Figure 1. Impact of Low Mississippi River Levels on Soybean Basis in Dollars per Bushel in Arkansas

References

Biram, Hunter, John Anderson, Scott Stiles, and Andrew McKenzie. “Low Water Levels in the Mississippi River Result in Abnormally Weak Soybean Basis“. Southern Ag Today 2(45.1). October 31, 2022. Permalink

Biram, Hunter, James L. Mitchell, and H. Scott Stiles. “Low Rivers Levels on the Mississippi River: Not the Three-Peat We Want.” Southern Ag Today 4(39.3). September 25, 2024. Permalink

Gardner, Grant, Hunter Biram, and James Mitchell. “Low River Levels, Barge Freight, and Widening Basis.” Southern Ag Today 3(39.1). September 25, 2023. Permalink

Mitchell, J. L., & Biram, H. D. (2025). The effects of extreme weather on rural transportation infrastructure and crop prices along the Lower Mississippi River. Applied Economic Perspectives and Policy.

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Biram, Hunter, and James L. Mitchell. “Estimating the Impact of Low Mississippi River Levels on Soybean Basis in the Midsouth.” Southern Ag Today 5(12.3). March 19, 2025. Permalink

Producers can keep track of their price risk protection through revenue insurance in a given growing season by comparing the Harvest (Fall) Price to the Projected (Spring) Price determined by USDA-RMA. In the broader picture of a marketing plan, revenue crop insurances provide a form of price guarantee at a premium expense similar to locking in a price guarantee using a put option contract (Biram and Smith, 2022). A previous article examined the price protection offered by Revenue Protection (RP), Supplemental Coverage Option (SCO), and Enhanced Coverage Option (ECO) crop insurance for corn and rice (Biram, 2023). That article only considered the change in prices and did not consider the potential change in yield. This article builds on the previous one by considering both the price and yield protection offered by ECO, and providing a snapshot of how changes in county yields can also trigger indemnities.

ECO is an area-based crop insurance product and must be paired with farm-level insurance like Yield Protection (YP) or RP. The liability insured by ECO is calculated using the same parameters as RP (e.g., APH farm yield and futures prices) at coverage levels of 90% and 95%. The futures price used is based on the higher of the Projected Price and the Harvest Price determined by USDA-RMA. Unlike RP – which triggers indemnities based on farm-level losses –ECO triggers an indemnity based on county-wide losses and will trigger a full indemnity when county-level revenue losses fall to 86%.

A county-level map is provided in Figure 1, which shows the extent that the final county yield can change relative to the expected county yield and still trigger an indemnity for corn that is equal to the producer paid premium (i.e., breakeven indemnity). In other words, this map answers the question of how much the county yield must change to trigger an indemnity that will at least cover the producer-paid premium. The producer premium was determined for RP at the 75% coverage level (RP-75) under optional units paired with ECO at the 95% coverage level (ECO-95) with the associated premium subsidy rate applied. Projected and Harvest Prices reported by the RMA Price Discovery Tool are used with theassociated price volatility. 

As an example, a county shaded in the darkest green shows that the final county yield may increase at least 21-26% for an indemnity to trigger which covers the producer premium. This suggests the price decline in the futures market was severe enough to allow for yield upside risk that would offset indemnities triggered on price alone. Conversely, a county shaded in the darkest red indicates that the final county yield must decline at least 6-11% before a large enough indemnity to cover producer premium is triggered. This implies that the price decline was not severe enough to trigger an indemnity on price alone. Most counties have experienced severe enough price declines in corn that yield can increase in comparison to the expected yield and potentially obtain a net indemnity above zero (e.g., yellow and green shaded counties).

A similar pattern exists for cotton and soybeans (Figures 2-3). Nearly all counties insuring cotton under ECO-95 and RP-75 allow for yield upside risk, or favorable potential, to determine an indemnity equal to producer premium with most counties allowing for 7-10% yield upside risk. The same story holds for soybeans with potential yield upside risk of 9-14% for most counties which indicates the extent of futures price declines for both cotton and soybeans in 2024. Rice is the exception with no counties allowing for yield upside potential in determining an indemnity equal to producer premium (Figure 4). This is expected given there was virtually no change (i.e., $0.002/lb) in the rough rice futures price between planting and harvest.

This analysis shows that price risk protection, which does not require a crop insurance premium, could be provided through ECO-95 if yields do not increase by more than 5% across most counties. However, given the potential for record yields across most of the U.S., this potential may be largely eclipsed. While this yield upside could be beneficial, it only considers one half of the profit equation, gross revenue. Further, price declines, paired with elevated production expenses, have not been met by risk protection from other farm bill programs, such as Price Loss Coverage and Agriculture Risk Coverage. This underscores the lack of price risk mitigation provided by current farm policy tools and the need for an updated farm safety net.

Figure 1. Percentage Change in County Yield for ECO-95 to Result in Zero Net Indemnity (Corn)

Figure 2. Percentage Change in County Yield for ECO-95 to Result in Zero Net Indemnity (Cotton)

Figure 3. Percentage Change in County Yield for ECO-95 to Result in Zero Net Indemnity (Soybeans)

Figure 4. Percentage Change in County Yield for ECO-95 to Result in Zero Net Indemnity (Rice)

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References

Biram, Hunter, and S. Aaron Smith. “The Option to Augment the Crop Insurance Price Floor“. Southern Ag Today 2(35.1). August 22, 2022. Permalink

Biram, Hunter. “Comparing the Harvest Price and Projected Price in Revenue Protection Crop Insurance for Rice and Corn.” Southern Ag Today 3(35.1). August 28, 2023. Permalink

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Biram, Hunter. “Can Yield Upside Risk Eclipse Price Downside Risk Protection in ECO Crop Insurance?” Southern Ag Today 4(47.3). November 20, 2024. Permalink

The Mississippi River level measured at Memphis, TN, has dropped to severe low levels for the third year in a row. As of 11:35 AM on September 23, 2024, the river level fell to -10 feet. In the past ten years, the Mississippi River has fallen below the established zero level^[1] during harvest (i.e., August 1 through November 30) seven times. However, the level has only fallen to the “low” stage – defined by the National Weather Service as -5 feet – four times (2015, 2017, 2022, and 2023). The river level has serious implications for cash basis, or the local cash price offered by a grain elevator less the futures price traded on a global market.

Barge freight rates are established by the U.S. Inland Waterway System using a percent of tariff system. Benchmark rates are based on the tariff rates from the Bulk Grain and Grain Products Freight Tariff No. 7, entered into in 1976 between the U.S. Department of Justice and Interstate Commerce Commission (USDA-AMS, 2024).  While these rates are no longer directly applicable, they are still used to calculate the percent of tariff.  Calculating the percent of tariff consists of dividing today’s tariff rate by the 1976 tariff rate. The 3-year average percent of tariff rates indicates the weekly barge freight rate tends to be near 360 percent of tariffs, or about $11.23/ton^[2] (USDA-AMS, 2024). Low Mississippi River levels have a negative effect on corn and soybean basis through the barge freight rate (Figure 1). For example, the week of September 26, 2023, the barge freight rate was 1,689 percent of tariff, or $53.03/ton, which means the cost to transport grain from Cairo, IL, or Memphis, TN, to the port of New Orleans was four times higher than the three-year average for the same week. 

Figure 1. The relationship between the Mississippi River level and barge freight rates for moving cargo from Cairo, IL or Memphis, TN 

Figure 1 plots the Mississippi River level measured at Memphis, TN, for the period August 1, 2023, through September 3, 2024. This figure also provides the weekly average freight, as well as the expected barge freight rate measured by the non-drought three-year average freight rate (i.e., 2019-2021). As the gage height falls, barge freight rates increase, and vice versa.

The relationship between the futures price and the price at local cash markets can change abruptly due to economic or environmental events, such as low river levels. Local cash bids offered by elevators on the Mississippi River tend to be influenced by river level in periods of drought, because it is more expensive to ship the same amount of grain in more loads due to reduced barge draft (Biram, et al., 2022; Biram, 2023; Gardner, Biram, and Mitchell, 2023). Figure 2 shows the soybean basis response to low river levels in Helena, AR, in 2022 and 2023 with another downward trajectory for 2024 as of September 20, 2024.

Figure 2. Daily Soybean Basis at Helena, AR in Harvest Window

Figure 2 shows the historical daily basis for soybeans during the months of July through November. The blue, orange, purple, and green lines denote the 2021, 2022, 2023, and 2024 crop years, respectively. The solid red line denotes the non-drought five-year average basis for a grain elevator in Helena, AR. The non-drought five-year-average provides the “normal,” or “expected,” basis. The dashed vertical line denotes the basis most recently reported (-26) on September 10, 2024, which is 5 cents below the five-year-average basis of -31 cents.

While it may appear that the current basis in the heart of the Midsouth Delta region is similar to the non-drought five-year-average, this should be interpreted with caution. Upon closer inspection, the 2022 crop year also saw relatively strong basis at this time, but a steep decline followed. The relatively strong basis in the first week of September is likely due to only 30% of the midsouth soybean crop being harvested with the remaining occurring by mid-November, along with recent rains, including those from Hurricane Francine. 

A potential option farmers might have is to store grain in the bin and market grain in the post-harvest window as described at length in previous Southern Ag Today articles (Gardner, 2023; Gardner and Maples, 2023; Gardner, 2024). Historically, futures and basis tend to recover in the months when there is little domestic production to buy and stocks are drawn down. We note that the USDA Marketing Assistance Loan (MAL) program may be an additional tool to add to a post-harvest marketing strategy. A benefit to using MALs is the offered interest rates are below the market average saving potential interest expense. Since grain sitting in the bin is not paying off the operating loan taken at the beginning of the crop year, interest accrues on the operating loan, creating the opportunity cost of storage in addition to the explicit costs of handling and drying (Gardner, 2023; Smith, 2024).

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^[1] According to the National Weather Service, silt may deposit in a river channel filling it up, or the channel may be washed deeper due to strong currents. Establishing a gauge zero level maintains consistency in river level measurements over time (National Weather Service, 2024).

^[2] This figure is found by multiplying the percent of tariff, which in this example is 3.60, by the benchmark rate for the Cairo-Memphis ports which is $3.14.

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References

Biram, Hunter, John Anderson, Scott Stiles, and Andrew McKenzie. “Low Water Levels in the Mississippi River Result in Abnormally Weak Soybean Basis“. Southern Ag Today 2(45.1). October 31, 2022. Permalink

Biram, Hunter. “Flooding in the Upper Mississippi River is Associated with Relatively Weak Soybean Basis in the Midsouth.” Southern Ag Today 3(21.1). May 22, 2023. Permalink

Gardner, Grant, Hunter Biram, and James Mitchell. “Low River Levels, Barge Freight, and Widening Basis.” Southern Ag Today 3(39.1). September 25, 2023. Permalink

Gardner, Grant. “Interest Rates and Grain Storage.” Southern Ag Today 3(26.1). June 26, 2023. Permalink

Gardner, Grant. “To Store or Not to Store? Old Crop Exit Strategies.” Southern Ag Today 4(35.1). August 26, 2024. Permalink

Gardner, Grant, and William E. Maples. “River Levels and Off-Farm Storage Disbursement.” Southern Ag Today 3(43.1). October 23, 2023. Permalink

National Weather Service. “How can a river stage be negative?” National Oceanic and Atmospheric Administration, National Weather Service. Accessed September 16, 2024. Permalink

Smith, Aaron. “Storing corn or soybeans: what is the futures market incentivizing?” Southern Ag Today 4(33.1). August 12, 2024. PermalinkUSDA-AMS. 2024.  Grain Transportation Repots. Available at: https://www.ams.usda.gov/services/transportation-analysis/gtr

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Biram, Hunter, James L. Mitchell, and H. Scott Stiles. “Low Rivers Levels on the Mississippi River: Not the Three-Peat We Want.” Southern Ag Today 4(39.3). September 25, 2024. Permalink