Nervous grain markets eye growing Gulf oil slick

Mon May 3, 2010 3:58pm EDT

Related Topics

* Grain markets "downside nervous" as oil slick spreads

* Gulf shipping lanes remain open, but delays possible

* Other ports could load grain at higher cost

* ADM, Bunge, Cargill report no impact on their shipments

By Karl Plume

CHICAGO, May 3 (Reuters) - U.S. grain markets are nervous that an expanding oil slick in the Gulf of Mexico may choke off exports of corn, soybeans and wheat from the country's busiest grains port, but shipping continues unfettered at the moment.

Any potential slowdown or halt in ship movement into or out of the Mississippi River could prompt exporters to divert supplies to other U.S. ports at an increased cost or to source grain from other countries such as Brazil or Argentina.

"The market's definitely downside nervous. That's probably part of why the market's off today," said Charlie Sernatinger, analyst with Fortis Clearing Americas.

"You've got a pretty big corn program going on down there and there are not a lot of ways to get around it," he said.

The U.S. Gulf is the country's biggest export point for grains. Between 55 and 65 percent of all U.S. corn, soybeans and wheat exports are shipped from the Gulf.

The U.S. Agriculture Department on Monday reported a slight decline in grain export inspections at the Gulf in the week ended April 29 [ID:nN29404692], but traders said the decline had little to do with the oil spill.

Inspections may actually accelerate in the near term as exporters seek to ship out as much grain as possible before the oil slick spreads further, traders said.

U.S. corn shipments would likely be impacted more than other grains. Soybean exports are seasonally slowing and most wheat is shipped from U.S. other ports.

Grain and soybean futures on the Chicago Board of Trade closed lower on Monday, largely due to a rising U.S. dollar. [GRA/]

SHIPPING NOT RESTRICTED

The U.S. Coast Guard said Monday that there are no restrictions in place for vessels moving through the main deepwater shipping lane from the Gulf of Mexico into the Mississippi River, known as the Southwest Pass.

But shippers are keeping a close watch of the situation amid forecasts that the expanding oil slick may eventually spread into the key shipping lane.

At that point, the Coast Guard may restrict movement or require that vessels be decontaminated after passing through affected areas to prevent wider contamination, a process which can take one or two days, according to traders.

Major grain companies such as ADM (ADM.N), Bunge Ltd (BG.N) and Cargill [CARG.UL] said they were monitoring the situation, but have reported no departure from their normal operations.

If Gulf shipping is restricted or halted completely at some point, grain companies may divert supplies to other elevators at the Texas Gulf or load vessels at their facilities in the U.S. Pacific Northwest or on the East Coast, analysts said.

"There are other options, but they just aren't really viable options," said Shawn McCambridge, analyst with Prudential Bache Commodities.

"There are things available, but they would be more expensive than what's lined up now so I don't think we're going to see anybody jump the gun," he said.

A trader in the Pacific Northwest said much of the near-term loading capacity at elevators there was sold out, and tight railroad shipping capacity would limit the volume of grain that PNW ports could source from farms in the Midwest.

"If grain companies are moving supplies to other ports, it's not been visible yet. People are probably expecting Gulf delays because of cleaning vessels, but I don't think at this stage anybody is expecting shutdowns," he said.

"There would be a huge economic penalty for shutting things down altogether. You would have to have a real disaster for that to happen," he said. (Reporting by Karl Plume; editing by Jim Marshall)

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