Increased Farm Values Push Up Landed Costs to Mexico

This article has been reprinted from the May 10 USDA Grain Transportation Report.

The landed costs of shipping grain to Mexico, via the water (barge/rail to ocean) and land (rail) routes, rose during the first quarter of 2018, primarily due to increased farm values. 

Compared to the previous quarter (see table below), landed costs of shipping corn, soybeans, and wheat through the water route increased by 4, 3, and 14 percent, respectively. 

The landed costs of shipping the same commodities through the land route increased by 3, 3, and 13 percent, respectively, during the quarter. 

In addition to the 7 percent increase in barge rates, the farm values of waterborne corn, soybeans, and wheat increased by 6, 3, and 21 percent, respectively, compared to the previous quarter. 

The farm values of the same commodities transported via land rose by 5, 4, and 21 percent, respectively.

Barge rates were impacted by river conditions, during the first quarter. 

In early 2018, low water and ice delayed barge traffic, on portions of the Mississippi and Illinois rivers, and kept weekly tonnages below average (see April 26, 2018 Grain Transportation Report). 

Water levels changed drastically in the second half of February, when significant rain events caused high-water conditions. 

The high-water conditions also slowed traffic and kept weekly tonnages below average. 

High water conditions led to increased barge freight rates, as barge operators incurred extra operating costs to handle longer transit times of barge movements. 

Truck rates declined for both the water and land routes, while the tariff rail rates remained relatively the same, compared to the previous quarter.

Total transportation costs increased 1 percent for  waterborne corn and soybeans, and decreased 1 percent for waterborne wheat. 

For the land route, total transportation costs remained relatively unchanged for corn, soybeans and wheat, compared to the previous quarter.

Year-to-year total transportation and landed costs were mixed. 

While year-to-year transportation costs increased for waterborne corn, soybeans, and wheat, landed costs increased for corn and wheat but remained the same for soybeans over the year. 

Similarly, year-to-year transportation costs increased for corn and wheat transported over the land route.

However, while the landed cost for wheat increased over the year, landed cost for corn stayed the same. 

Soybean transportation and landed costs declined. 

During the quarter, the transportation share of the landed costs ranged from 12 to 28 percent for the water route and 22 to 41 percent for the land route (see table).

Landed costs ranged from $185 to $408 per metric ton (mt) for the water route (see table and figure 1) and $224 to $438 per mt for the land route (see table and figure 2).

Market Analysis and Outlook

Between January and March of this year, Mexico imported 2.80 million metric tons (mmt) of corn, 0.90 mmt of soybeans and 0.72 mmt of wheat (FAS, GATS Data). 

The quantities of corn and wheat are less than during the same period last
year. 

In contrast, the quantity of soybeans is more than during the same period a year ago.

Mexico imported more corn, soybeans, and wheat from the United States during calendar year 2017, than in 2016. 

According to the USDA’s Foreign Agricultural Service (FAS), Mexican grain imports are expected to increase (USDA, FAS GAIN Report #: MX8010). 

Total corn imports for marketing year (MY) 2018/19 are forecast at 16.8 mmt, a 5 percent increase over MY2017/18—driven by bullish demand for feed consumption. 

Similarly, Mexico’s wheat imports for MY 2018/19 are forecast at 5.5 mmt, 6 percent more than the previous year (USDA, FAS GAIN Report #: MX8010). 

This increase is driven by greater demand from Mexico’s domestic wheat flour industry and an insufficient domestic supply. 

Despite Mexico’s efforts to source wheat from nontraditional suppliers, such as Russia and Ukraine, it imported 30 percent more wheat from the United States in 2017 than in the previous year. 

During the same period, imports from Russia and Ukraine fell by 32 and 22 percent, respectively. 

The quality of U.S. wheat and logistical advantages played a significant role in this shift. 

Based on a relatively positive outlook for Mexico’s livestock sector and its population growth rate, oilseed imports from the U.S. are expected to increase by 2.3 percent in MY 2018/19 (USDA, FAS GAIN Report #: MX8013). 

The United States continues to be the largest supplier of soybeans to Mexico.