This study investigates the relationship between the water levels in inland waterway systems and the corn Gulf spread, defined as the difference between local corn prices and the Gulf export price. Barge transportation, the primary mode for transporting corn to the Gulf export market, becomes unreliable during unusually high or low water levels, disrupting market dynamics. Using a spatial Durbin model (SDM) we analyze both the indirect and spillover effects of water levels on the Gulf spreads. The results indicate an inverse U-shaped relationship between the regional spread and both own-region water levels and neighboring water levels which drive significant spread changes, particularly during extreme water conditions. The optimal water level for minimizing the Gulf spread is estimated at about 21 feet, with a 10-foot deviation widening the spread by 4.55 cents per bushel and a 20-foot deviation increasing it by 18.17 cents. Our findings provide direct insights into how fluctuations in water levels shape local grain markets.
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