June 29, 2000
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To: |
The Commission
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From: |
The Division of Economic Analysis
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Subject: |
Applications of the Merchants Exchange of St. Louis (MESL) for Designation as a Contract Market in Illinois Waterway Barge Freight Futures and St. Louis Harbor Barge Freight Futures. |
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Recommendation: |
That the Commission designate the MESL as a contract market in Illinois Waterway Barge Freight futures and St. Louis Harbor Barge Freight futures and approve proposed rules 901A through 907A for the Illinois Waterway futures contract and 901B through 907B with respect to the St. Louis Harbor futures contract. |
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Concurring: |
Division of Trading and Markets Office of the General Counsel Division of Enforcement Office of Executive Director |
Processing Information
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Submitted Under: Regular Review Procedures |
Responsible DEA Staff |
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Official Receipt Date: 01/7/2000 |
Martin Murray: |
418-5276 |
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Review Period Stayed: No |
Fred Linse: |
418-5273 |
Requests for Comment
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Federal Register Publication |
Comments Received |
Government Agency Comments |
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62 FR 4805 February 1, 2000 |
Four comment letters received. |
No other agency has a regulatory role in barge freight futures trading. |
Introduction
The proposed futures contracts will be traded on the Merchants Exchange of St. Louis (MESL), a new futures exchange. The proposed contracts will be traded electronically. This memorandum addresses the conformity of the proposed contracts with the economic requirements of the Commodity Exchange Act as well as the Commission's Regulations and policies, including Guideline No. 1. The Division of Trading and Markets has prepared a separate memorandum to the Commission regarding approval of the Exchange's proposed rules of governance and operations.
Salient Characteristics of the Barge Freight Cash Market
The proposed futures contracts will be the first contracts that call for physical delivery of a service, rather than a tangible commodity. Each of the proposed futures contracts will be settled by the delivery of a transportation service—the shipment of grain[1] in dry covered cargo barges to customary export points either on the lower Mississippi River from origination points on the Illinois River or at St. Louis Harbor.
Background: The U.S. barge industry consists of more than 31,000 barges and 6,200 towboats and tugboats with an overall carrying capacity of over 89 million tons. The industry handles nearly 800 million tons of raw materials and finished goods annually, which accounts for about 15 percent of all U.S. freight shipments. Products shipped on barges are those that lend themselves to bulk shipment, including petroleum and petroleum products (which account for the largest share of all barge shipments), coal (the second largest share), crude materials such as wood, sand, gravel and metals, followed by grain and grain products.
The barge freight industry utilizes the U.S. waterway system that consists of about 25,000 miles of rivers, including all or parts of the Mississippi, Illinois, Ohio, Missouri, and Columbia rivers, as well as the U.S. intra-coastal waterway system. The river portion of the system relies upon a system of locks and dams to permit navigation on portions of rivers where water flow levels fluctuate widely on a seasonal basis as well as from year to year. The U.S. Army Corps of Engineers has the responsibility for maintaining the lock and dam system and dredging the river and intra-coastal waterways to assure that they have adequate depths for navigation.
The river portion of the U.S. waterway system accounts for about 60 percent of all U.S. exports of grain and grain products. In this regard, the primary destination of barge shipments of grain or grain products, primarily corn and soybeans, are export terminals located on the lower Mississippi River at or near New Orleans. The vast majority of barge shipments of grain originate on the upper Mississippi and Illinois rivers. These rivers flow through the primary U.S. production areas for corn and soybeans.
Cash Market Operations: The primary participants in the grain barge-freight cash market are grain merchants (shippers) and barge line operators (carriers). There are 32 separate carriers operating approximately 12,500 covered dry cargo barges on the Mississippi River and connecting waterways, including the Illinois River (see Appendix A). The largest four carriers operate approximately 60% of the fleet. There are 10 separate shippers operating 44 barge-loading facilities, with a total registered loading capacity of 81 barges per day (2,430 barges per month) on the Illinois Waterway (see Appendix B). In the St. Louis Harbor, there are 5 separate shippers with a total registered loading capacity of 13 barges per day (about 390 barges per month) (see Appendix C).
An important aspect of barge shipping operations is the need for barge fleeting facilities. These facilities, typically owned by firms not associated with carriers or shippers, provide temporary storage locations for empty barges, as well as other services. Typically, empty barges are left at a barge fleeting facility until the barge owner arranges for its use in shipping. The operator of the fleeting facility moves the empty barge to the location designated by the freight buyer where the barge is loaded. The loaded barge is then combined with other barges into a shipping unit (called a tow) for movement to the buyer's destination. There are 22 operators who provide fleeting service on the Illinois Waterway with fleeting capacity in excess of 1,700 barges. In St. Louis Harbor, fleeting capacity exceeds 1,200 barges maintained by 7 operators.[2]
Grain Shipments: Barge shipments of grain (soybeans, corn, and wheat) from the Illinois Waterway and St. Louis Harbor follow a seasonal pattern, with heavier shipments in the winter and lighter shipments in the summer (see Appendix D for grain shipment data for crop years 1995 through 1998). This seasonal shipping pattern reflects, in part, the fact that the Mississippi River above St. Louis is frozen during the winter months whereas the Illinois River and the Mississippi River at and below St. Louis are open to barge shipping year round. In this regard, corn and soybeans from Iowa and Minnesota often are shipped by truck or rail to Illinois River or St. Louis barge loading locations during the winter months for shipment by barge to lower Mississippi River export destinations. In 1998, the lower Mississippi River was the destination for approximately 91 percent of food and food products originated on the Illinois Waterway. It also was the destination for approximately 97 percent of food and food products originated on that portion of the Mississippi River between the mouths of the Illinois and Ohio rivers, which includes St. Louis harbor.[3]
Cash Market Transactions: Trade sources indicated that the cash barge market for shipping grain to lower Mississippi River export locations is one of the most liquid cash markets in the world, with buyers and sellers being able to readily purchase barge freight or resell existing barge freight commitments as necessary to meet shipping requirements. The vast majority of cash market transaction in barge freight are established via telephone or fax contact among buyers and sellers.
Barge freight typically is sold in whole barge units. Barges hold between 1,400 short tons (rake barges) and 1,600 short tons (box barges) of grain. Prices are quoted as a percentage of the “benchmark tariff” applicable to a particular river segment.[4] The benchmark tariff is a “fixed” rate, quoted in dollars and cents per ton, for transporting dry cargo from a given river segment to lower Mississippi River grain export facilities located between Baton Rouge and Myrtle Grove, Louisiana. A single tariff benchmark of $3.99 per ton is applicable to shipments from St. Louis to these destinations. On the Illinois Waterway, there are 6 tariff benchmarks, ranging from $4.64 per ton for the southernmost benchmark point, to $5.78 per ton for the northernmost point. Typically, the entire Illinois Waterway is treated as a single entity for purposes of quoting cash market prices as a percentage of benchmark tariff, although occasionally points north of Pekin, Illinois, including those in the vicinity of Chicago, are quoted separately from the rest of the Waterway. The MESL's proposed par benchmark tariff for the Illinois Waterway contract is $5.07 per ton, which would be applicable to barge shipments from grain loading points between Ottawa and Chillicothe, Illinois. The Illinois Waterway contract also specifies discounts and premiums for the non-par delivery locations based on the benchmark tariffs for these locations. The St. Louis Harbor contract has a single benchmark tariff of $3.99 per ton.
Most cash market transactions (approximately 75%) are executed on a forward basis, calling for placement of an empty barge in a barge-fleeting facility along a specified river segment (such as the Illinois Waterway); the time of placement and the placement point are determined by the buyer upon notice of scheduled delivery. A significant number of transactions (approximately 25%) are sold on a spot basis for the same week or next-week placement. In addition, as indicated above, many previously contracted forward commitments are re-sold by shippers on a spot basis. Typically, the terms of both forward and spot transactions require placement during a particular calendar week and permit the carrier to select the day of placement within that week.
Existing Futures Markets and Available Cash Price Information: The Chicago Board of Trade (CBT) is designated as a contract market in cash-settled barge freight futures, but this contract is dormant under Section 5.2 of the Commission rules. Cash barge freight quotes are published weekly by the Agricultural Marketing Service of the USDA (USDA-AMS). In addition, the MESL maintains an electronic call session for barge freight which establishes spot and forward cash prices for shipping grain to New Orleans. This session, however, is not actively traded. In addition, at least one private freight broker provides a summary of quoted daily spot and forward barge freight rates to its subscribers.
The Exchange indicates that the proposed contracts are intended to complement trading in the CBT's recently revised corn and soybean futures contracts. In this regard, beginning in January 2000, the CBT's soybean futures contract calls for delivery of soybeans into barges from loading facilities on the Illinois Waterway and St. Louis Harbor. The CBT's corn futures contract calls for delivery of corn into barges at loading facilities on the Illinois Waterway from Chicago to Pekin, Illinois.
Analysis of Terms and Conditions of the MESL Barge Freight Futures Contracts
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Futures Term |
Exchange Proposal |
Comment/Analysis |
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Commodity Specification |
Covered dry cargo barges delivered to the buyer's designated originating facility and moved to the buyer's designated receiving facility on the lower Mississippi River. |
Acceptable. Reflects industry standard for trading barge freight. |
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Delivery Points/Region. |
· Illinois Waterway Contract. Origination between Illinois River mile marker 0 up to, but not including Lake Michigan (including up to mile marker 327 on the Chicago River and mile marker 333 on the Calumet River). · St. Louis Harbor Contract. Origination in St. Louis Harbor on the Upper Mississippi River between mile markers 168.0 and 184.7 · For both contracts, destinations are grain export facilities on the lower Mississippi River between Baton Rouge and Myrtle Grove, Louisiana. |
Acceptable. St. Louis Harbor and the Illinois Waterway serve as important grain shipping points, as well as barge fleeting locations and pricing points for barge freight. The lower Mississippi River is the primary destination for grain shipped from these locations for export. |
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Locational Differentials |
· Illinois Waterway Contract. The par delivery area is the Illinois Waterway between the Marseilles Lock and Chillicothe, Illinois, corresponding to a tariff benchmark of $5.07 per ton. Non-par locations are deliverable at adjustments based on the benchmark tariffs for those locations relative to the par location. · St. Louis Harbor Contract. Par delivery at St. Louis Harbor, with a benchmark tariff of $3.99 per ton. No non-par delivery locations are specified. |
Acceptable. The locational differentials conform to cash market practices. Barge freight rates are quoted as a percentage of the benchmark tariff for specific river segments. Proposals meet the Commission's policy on locational price differentials. |
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Contract Size |
3,000 tons, represented by 2 covered dry cargo barges of 1,500 tons capacity each.
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Acceptable for hedging. Smaller than typical cash transactions, but no impediment to delivery.
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Delivery Procedures |
Seller must place one barge in each half of the delivery month at the buyer's placement point. Seller may place the barge on any day of its choosing within the placement period. Placement is made to a “fleet.” At seller's expense, the fleet operator arranges transport of an empty barge to the buyer's facility for loading, and subsequent transfer of loaded barge to a south-bound tow for shipment to destination. |
Acceptable. Method of placement and procedure for moving barges to buyer's loading facility conform to commercial practices. Delivery period does not represent typical commercial practices since most cash contracts are made on the basis of a calendar week delivery period, rather than 1st half/2nd half of month. However, some cash contracts specify 1st half/2nd half delivery, and the proposal should not significantly impede delivery on the futures contract. |
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Other Delivery Provisions |
· Unless specified otherwise, delivery of barges must comply with the National Grain and Feed Association (NGFA) Barge Freight Trade Rules. · Force Majeure may only be declared by seller if no carrier is offering freight at that time on the affected river segment. If any one carrier is operating, seller must deliver its own freight or, effectively, “buy-in” the operating carrier's freight to satisfy delivery requirement, regardless of conditions that might otherwise be considered force majeure. |
Acceptable. These provisions are considered unacceptable by several major carriers due to carriers' fears of pro-shipper bias on the part of NGFA provisions and gouging as a result of the force majeure language. However, other firms indicated that these provisions are acceptable. The Division believes that the 50-contract spot month speculative position limit for the Illinois Waterway contract will address manipulation concerns related to reduced deliverable supplies during periods (e.g., winter) when force majeure is more likely to be declared. These provisions will not negatively impact deliverable supplies for the St. Louis harbor contract because any conditions of force majeure at this location would be extremely rare. |
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Delivery Months |
All calendar months. |
Acceptable. Deliverable supplies potentially are adequate for each calendar month, when considered in relation to the proposed spot month speculative position limits. |
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Last Trading Day |
Last trading day is the last business day of the calendar month preceding the delivery month. |
Acceptable. The proposed last trading day will provide adequate time for deliverers to arrange for delivery during the 1st half of the delivery month. |
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Weights |
Official weights of dry cargo made at destination shall govern final payment; provisional payment will be made at time of delivery based on the minimum tonnage of the barge type provided (1,400-ton rakes or 1,600-ton boxes). |
Acceptable. The provision of official weights at destination is standard commercial practice since many facilities do not have the ability to provide official weights at origin. |
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Pricing Basis and Minimum Price Change |
· Illinois Waterway Contract. Quoted as a percent of the benchmark tariff of $5.07 per ton for delivery between Ottawa and Chilicothe, Illinois. · St. Louis Harbor Quoted as a percent of the benchmark tariff of $3.99 per ton. · Minimum price change is 1/10th of 1% (equals $11.97 per contract). |
Acceptable. Minimum price change is less than normal cash market tick of 2-½% of benchmark tariff. |
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Daily Price Limit |
20% of benchmark tariff (200 basis points). Limits do not apply during the last seven days of trading. |
Acceptable. Review of daily cash barge freight data indicates that the proposed price limits will not be overly restrictive in relation to normal daily cash price changes. |
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Speculative Position Limits |
· 100 contracts in any one non-spot month and 1,000 contracts in all months combined. · 100 contracts in spot month for St. Louis Harbor contract, and 50 contracts for the Illinois Waterway contract. · Reportable position level is 25 contracts, the same as the minimum reporting level specified in Commission Rule 15.03. · Aggregation rule language same as Commission Rule 15.03. |
Acceptable. All months combined and non-spot month limits are consistent with Commission Rule 150.5 requirements. Spot month limits are less than or equal to 25% of estimated minimum deliverable supplies, per Commission Rule 150.5 (see below). |
Deliverable Supplies
Deliverable supplies for the proposed contracts consist of the number of covered cargo barges that normally would be available for shipment of grain on a spot basis from the contracts' delivery points during the specified delivery months. In particular, deliverable supplies for a particular delivery month should equal the sum of the following items: (1) the number of empty covered cargo barges in fleeting facilities at or near the contracts' delivery points at the beginning of the month; (2) the number of empty covered cargo barges that arrive at the delivery points during the delivery month; plus (3) the number of loaded covered cargo barges that arrive at or near the delivery points and are unloaded in time to be moved to the receiver's designated loading point for delivery during the delivery month.
To estimate deliverable supplies for the proposed contracts, the Division used two data series reported by the U.S. Army Corps of Engineers: (1) monthly barge shipments of corn, soybeans and wheat from Illinois River and St. Louis barge loading facilities for the years 1996 through 1999, and (2) monthly movements of loaded and empty barges upriver through the LaGrange lock on the Illinois River and Lock No. 27 on the Mississippi River for the same years.[5] While subject to some limitations,[6] these data series are the best obtainable measures of the availability of barges for delivery on the proposed contracts.
Analyses of these data indicate that deliverable supplies for the proposed contracts fluctuate seasonally in direct correspondence with the seasonal variation in grain shipping activity. For example, for the Illinois River barge freight futures contract, estimated deliverable supplies varied from a peak of 875 contracts in January 1996 to a low of 203 contracts in August 1996.[7] For the St. Louis barge freight futures contract, the data indicate that deliverable supplies ranged from a maximum of 1,629 contracts in March 1996 to a minimum of 441 contracts in September 1998.[8] As noted (see footnote 6), the deliverable supplies estimates for both contracts may tend to underestimate actual deliverable supplies to some extent due, in part, to the lack of a complete data series on empty barges held in fleeting areas in the delivery areas.
Deliverable supplies for the futures contracts will be sufficiently large to ensure that the futures contracts will not be readily susceptible to price manipulation or distortion. This conclusion is based on the number of barges normally available at the delivery points during the delivery month, the potential availability of empty covered barges at fleeting facilities (see footnote 6) and the proposed spot month speculative position limits. In this regard, the proposed spot-month speculative position limits are consistent with the requirement of Regulation 150.5(b)(1) which specifies that such limits must be no greater than 25 percent of the estimated deliverable supplies for a physical delivery futures contract.
Federal Register Comments
Four comments were received in response to the Commission's Federal Register notice requesting public comment on the proposals. Commenting entities include a cargo carrier, a cash grain broker, a farmers' grain cooperative, and a corn wet-miller. All four entities supported the proposed futures contracts, indicating that these contracts could be useful hedging tools.
Conclusions
The Division of Economic Analysis has completed its review of MESL's proposed St. Louis Harbor and Illinois Waterway barge freight futures contracts. The Division believes that the proposed futures contracts meet the requirements of the Commodity Exchange Act (Act), the Commission's Guideline No. 1, and Commission Regulation 150.5 concerning speculative position limits. Also, the Division, based on its analysis, is of the opinion that the proposed futures contracts reasonably can be expected to be used for hedging on more than an occasional basis. Finally, the Division is of the opinion that the proposed futures contracts do not appear to be readily susceptible to price manipulation or other distortion and are otherwise consistent with Section 5(7) of the Act which requires that designation of a contract market not be contrary to the public interest.
Attachments:
· Proposed rules for the subject futures contracts (Appendix E).
The Exchange's application and other background materials are not included with this document but are available to the Commission upon request. The proposed orders of designation and letter to the Exchange are included with the memorandum of the Division of Trading and Markets.
APPENDIX A
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Appendix A. Covered Barges, by Carrier |
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Company |
Barges |
Share |
Company |
Barges |
Share |
|
ACBL |
2,902 |
23% |
Olympic Marine |
148 |
1% |
|
Artco |
2,023 |
16% |
Midwest Marine |
132 |
1% |
|
Peavey |
1,500 |
12% |
Blaske Marine |
74 |
1% |
|
Cargo Carriers |
954 |
7% |
Greater Cincinnati Marine |
62 |
0% |
|
Midland Enterprises |
923 |
7% |
Volunteer Barge |
60 |
0% |
|
MEMCO |
637 |
5% |
Phoenix Towing |
46 |
0% |
|
Riverway Company |
540 |
4% |
Riverland |
42 |
0% |
|
Hunter Marine |
506 |
4% |
Terral River Service |
41 |
0% |
|
Bunge |
428 |
3% |
Kinder Morgan |
25 |
0% |
|
Alter Barge Line |
295 |
2% |
Oakley Barge |
20 |
0% |
|
American Milling |
295 |
2% |
Eagle Marine Transport |
12 |
0% |
|
Robert B. Miller & Assoc |
292 |
2% |
Parker Towing |
12 |
0% |
|
Sunn Enterprises |
275 |
2% |
Jantran |
11 |
0% |
|
MGT |
206 |
2% |
Augusta Barge |
6 |
0% |
|
Pinnacle Transportation |
185 |
1% |
Blessey Enterprises |
2 |
0% |
|
Mid-South Towing |
174 |
1% |
Total |
12,828 |
|
|
Source: Barge Fleet Profile of Inland River Barges for the Mississippi River System and Connecting Waterways, (Sparks Companies, Inc., March 1999). (See Exhibit I, Attachment 17 to MESL's January 7, 2000, submission.) |
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APPENDIX B
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Appendix B. Grain Shipping Stations on the Illinois Waterway |
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Firm |
Location |
Mile Marker |
Daily Barge Loading Rate |
Firm Share |
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ADM/Growmark |
Morris-E, IL |
263.0R |
2 |
|
|
ADM/Growmark |
Morris-W, IL |
262.9R |
2 |
|
|
ADM/Growmark |
Ottawa-N, IL |
241.8R |
2 |
|
|
ADM/Growmark |
Ottawa-S, IL |
236.9L |
2 |
|
|
ADM/Growmark |
La Salle, IL |
223.3R |
2 |
|
|
ADM/Growmark |
Spring Valley, IL |
218.4R |
2 |
|
|
ADM/Growmark |
Hennepin, IL |
207.7L |
2 |
|
|
ADM/Growmark |
Henry, IL |
195.8R |
1 |
|
|
ADM/Growmark |
Lacon, IL |
189.5L |
2 |
|
|
ADM/Growmark |
Chillicothe, IL |
180.5R |
1 |
|
|
ADM/Growmark |
Creve Coeur, IL |
158.1L |
2 |
|
|
ADM/Growmark |
Peoria, IL |
161.4R |
2 |
|
|
ADM/Growmark |
Havanna-N, IL |
119.6L |
3 |
|
|
ADM/Growmark |
Havanna-S, IL |
119.3L |
2 |
|
|
ADM/Growmark |
Beardstown, IL |
91.0R |
2 |
|
|
ADM/Growmark |
Naples, IL |
66.1L |
2 |
|
|
ADM/Growmark |
Florence, IL |
57.2R |
1 |
|
|
Sub-Total: ADM/Growmark |
|
|
32 |
40% |
|
Cargill |
Lockport, IL |
292.5R |
2 |
|
|
Cargill |
Morris-E, IL |
263.3R |
2 |
|
|
Cargill |
Seneca, IL |
252.5R |
2 |
|
|
Cargill |
Ottawa, IL |
238.5L |
3 |
|
|
Cargill |
Spring Valley, IL |
218.3L |
3 |
|
|
Cargill |
Hennepin, IL |
207.5L |
2 |
|
|
Cargill |
Lacon, IL |
189.3L |
2 |
|
|
Cargill |
Havanna-N, IL |
119.9L |
1 |
|
|
Cargill |
Havanna-S, IL |
119.8L |
1 |
|
|
Cargill |
Beardstown, IL |
88.1L |
1 |
|
|
Cargill |
Merdedosia, IL |
71.3L |
2 |
|
|
Cargill |
Florence, IL |
55.3R |
3 |
|
|
Sub-Total: Cargill |
|
|
24 |
30% |
|
Louis Dreyfus |
Lockport, IL |
292.8R |
1 |
|
|
Louis Dreyfus |
Morris, IL |
263.0R |
1 |
|
|
Louis Dreyfus |
Utica, IL |
229L |
2 |
|
|
Louis Dreyfus |
Peru, IL |
222.9R |
1 |
|
|
Louis Dreyfus |
Hennepin, IL |
207.4R |
2 |
|
|
Sub-Total: Louis Dreyfus |
|
|
7 |
9% |
|
Granite Grain |
Pekin, IL |
151.2L |
5 |
6% |
|
CGB |
Utica, IL |
229L |
1 |
|
|
CGB |
Peru, IL |
222.9R |
1 |
|
|
CGB |
Hennepin, IL |
207.4R |
1 |
|
|
CGB |
Naples, IL |
65L |
1 |
|
|
Sub-Total: CGB |
|
|
4 |
5% |
|
Chicago & Ill. Rvr. Mktg. |
Chicago, IL |
329.4R |
3 |
4% |
|
Tomen America |
Pekin, IL |
152.2L |
2 |
2% |
|
Maplehurst Farms |
Ottawa, IL |
236.4R |
1 |
1% |
|
Prairie Central Co-op Inc. of Chenoa, IL |
Havanna-N, IL |
119.9L |
1 |
1% |
|
Total |
|
|
81 |
|
APPENDIX C
|
Appendix C. Grain Shipping Stations in St. Louis Harbor. |
||||
|
Firm |
Location |
Mile Marker |
Daily Loading Rate Barges/Day |
Share |
|
ADM/Growmark |
St. Louis, MO |
UM 184R |
4 |
31% |
|
Italgrani |
St. Louis, MO |
UM 173 |
3 |
23% |
|
Cargill |
E. St. Louis, IL |
UM 179L |
2 |
15% |
|
ConAgra |
Sauget, IL |
UM 177L |
2 |
15% |
|
Granite Grain |
Cahokia, IL |
UM 176.5L |
2 |
15% |
|
|
|
|
13 |
|
|
Source: Chicago Board of Trade. |
||||
APPENDIX D
[REDACTED]
[1] The futures contracts' terms specify that the cargo shipped must be whole corn, soybeans, or wheat, unless otherwise agreed to by the buyer and seller.
[2] These data are based on public information published by the U.S. Army Corps of Engineers, Water Resources Support Center, Navigation Data Center, Port Series numbers 46 (Chicago), 65 (Illinois Waterway, excluding Chicago), and 70 (St. Louis).
[3] Origin and Destination of Waterborne Commerce of the United States, 1998 (US Army Corps of Engineers, Navigation Data Center).
[4] The benchmark tariffs were originally fixed rates established by the Interstate Commerce Commission. With the deregulation of barge freight rates in 1978, the use of fixed tariffs were discontinued, but the benchmarks continued to be used by the industry as reference points for pricing barge freight. The MESL incorporated the tariff schedule in its call sessions for freight, and has, when necessary, established tariffs for newly-navigable river segments.
[5] The LaGrange lock is located on the southern part of the Illinois River and is situated below nearly all major grain shipping points on that river. Lock No. 27 on the Mississippi River is located at the northern boundary of the delivery area for the proposed St. Louis Harbor barge freight futures contract. Lock No. 27 is the last lock on the Mississippi River between St. Louis and New Orleans.
[6] The above-noted data are limited in several ways. First, they do not include the number of empty covered barges held in barge fleeting areas at the beginning of each delivery month and may underestimate total supplies. Second, the data on corn, soybean and wheat shipments are indicative of the demand for barge shipments of grain only from the proposed delivery areas and, thus, generally underestimate the total supply of barges available in the delivery areas. On the other hand, the data on movements of loaded and empty barges upriver through the LaGrange lock on the lower Illinois River and Lock No. 27 on the Mississippi River at St. Louis do not specify whether the barges are covered barges or other types of barges and, as a result, may overestimate covered dry cargo barge supplies to some extent (however, given the large volume of down river shipments of grain, it appears likely that the vast majority of barges moving upriver would be suitable for carrying grain in order to permit the most efficient utilization of the barges). All things considered, the available data are more likely to underestimate rather than overestimate deliverable supplies.
[7] Deliverable supplies for the proposed Illinois River futures contract for each month of the 1996-99 period were estimated as the greater of barge shipments of grain from the Illinois River or the sum of empty barges moving upriver through the LaGrange lock on the Illinois River plus upriver shipments of coal, farm products, and processed materials through that lock (an exchange official indicated that the indicated products commonly are shipped in covered cargo barges or in barges that can be covered). In this regard, the Division's estimation procedure assumes that all covered dry cargo barges available in the proposed delivery area (and the delivery area for the proposed St. Louis contract) are available on a spot basis. This assumption is based on information from trade sources indicating that barges which are committed under forward contracts to loading at particular locations often are redirected to meet spot sales contracts by transferring the forward commitment to other barges at that location or to other barges for loading at other locations.
[8] The Division's deliverable supply estimates for St. Louis were based on movements of empty barges up the Mississippi River through Lock No. 27, which is located at the northern boundary of the St. Louis barge freight delivery area, rather than the grain shipment data noted above. This procedure was followed in view of the fact that grain shipments from St. Louis tend to be substantially smaller than grain shipments from the Illinois River due to its more geographically limited area and the fact that St. Louis is a major transit point for empty barges moving upriver to locations on the Illinois and upper Mississippi Rivers to be loaded with grain for shipment down-river. The significance of St. Louis's role as a major transit point for the barge shipping industry is due to the fact that Lock No. 27 is the most southerly lock on the Mississippi River. Since the locks limit the number of barges that can be moved by a single towboat to usually no more than 15 barges, barge shipments moving upriver from New Orleans or down-river from locations above St. Louis typically are moved to barge fleeting areas below lock 27 at St. Louis where they are recombined into shipping units that are suitable for further movement either up or down river. In view of the fact that grain accounts for the vast majority of shipments on the Illinois and Mississippi Rivers and that such shipments are down-river, empty barges moving upriver through St. Louis likely consist almost entirely of covered cargo barges. While the above-noted data reflect empty barges moving to locations above St. Louis, they would have been held at St. Louis barge fleeting areas at some point during the delivery month and potentially would have been available for futures delivery at St. Louis.