Grains Exports Could Be Harmed by Gulf Oil Spill

ISU economist says if huge oil slick enters the shipping lanes, there could be a slowdown in shipping traffic.

Published on: Jun 8, 2010

With the latest failed efforts to stop the flow of oil from an uncapped well into the Gulf of Mexico, projections are that the spill may not be contained until late summer, or later. That could affect grain prices for the United States and overseas markets, according to Iowa State University Extension grain marketing specialist Chad Hart.

Hart, an assistant professor of economics at Ames, says that if the oil slick enters the shipping lanes there could be a slowdown in shipping traffic.

"If the oil slick gets into what is called the Southwest Passage - which is a canal that goes from New Orleans out to the Gulf of Mexico - we would be looking at severe delays in getting our corn and soybeans shipped overseas," says Hart.

Ships would have to be cleaned, slowing the movement of grain

Ships can sail through the oily water, but would need to be cleaned when they enter port. "When a ship comes into port, it would have to be cleaned if it went through the oil slick," says Hart. "And then when the ship goes to its destination, it would have to be cleaned again when it arrives."

The result would be much slower movement of grain out of the Midwest to foreign markets. More than 60% of United States grain goes through the port of New Orleans. Right now the oil spill is moving mainly to the east, so there has been little impact on the shipping lanes, which lay to the west of the slick.

"If we end up with a bottleneck down there, we could see prices in the U.S. fall from 10 to 50 cents (per bushel)," says Hart. "Hurrican Katrina a few years ago had a similar impact when it struck New Orleans. If this happens and we see U.S. grain prices fall, people will start to look at alternative shipping routes. For instance, right now, most of our soybeans that are going to China, go through New Orleans. People may start shipping overland to the Pacific Northwest by rail to ship over to China. That is a more expensive route to take, but it is an alternative if the gulf shipping slows down."

As long as the spill stays clear of the shipping lanes for the next few months, Hart doesn't feel there will be a huge impact on prices. "In some ways we were lucky on the timing," says Hart. "We ship most of our grain earlier in the year, so right now there are smaller amounts of grain moving."