Grain Transportation Update
Date Posted: October 31, 2013
This article is reprinted from the USDA's Oct. 31 Grain Transportation Report.
Producers are harvesting record yields for corn and soybeans, exceeding the USDA September forecasts in many locations.
Temporary and emergency grain storage is needed in States where supply has exceeded storage capacity.
This, in turn, is increasing demand for barge and rail transportation, which are already experiencing increased grain volumes as a result of the harvest.
Water levels on the Mississippi River are lower than average, causing some concern for barge traffic during harvest.
Meanwhile, the record corn harvest, strong export demand for soybeans and wheat, and slower rail service are creating a huge premium for securing adequate railcars in both the non-shuttle and shuttle markets.
Grain Storage Capacity Stretched by Record Harvest
USDA’s September Crop Production forecasts a record 13.8 billion bushel corn crop and a 3.15 billion bushel soybean crop.
Yields in many States have already exceeded the early preliminary forecasts, indicating that temporary and emergency grain storage will be needed as the harvest proceeds.
Based upon these early preliminary estimates, temporary and emergency grain storage methods for grain supply in excess of storage capacity are expected to be needed in the States of Nebraska, Indiana , South Dakota, Ohio, Michigan, and Kentucky.
In addition, both the size and compressed duration of the harvest could stretch the capacity of rail and barge transportation, further increasing demand for temporary and emergency grain storage.
Barge Movements Increase with Major Harvest Activities
Beginning in September, downbound barge movements on the locking sections of the river system1 steadily increased and began to follow seasonal trends.
There were significant increases for the 14-day period ending October 26 with barge movements averaging 820,000 tons per week, up considerably from the 5-year average for the same period of 651,000 tons per week.
However, year-to-date totals for the barge movements are 16.8 million tons, 30 percent lower than last year and 33 percent lower than the 5-year average.
An above average number of barges unloaded in New Orleans starting in September.
The increase in the number of unloaded barges can mostly be attributed to the southern corn and soybean harvest that originates on the non-locking section of the lower Mississippi River.
However, some of the increase can be attributed to an increase in barge movements from the locking portions of the river.
The southern harvest is not counted in the weekly locking barge grain tonnages reported by AMS from data collected by the U.S. Army Corps of Engineers.
Weekly barge movements before the 2013 harvest were considerably lower than the 5-year average.
The amount of available grain to be loaded onto barges for export had been limited by drought-reduced yields in 2012 and weak foreign demand for U.S. grains.
However, there were some late-summer upbound grain movements, as southern new crop moved to alleviate supply shortages in northern areas experiencing a late corn-harvest.
For the 8-week period from August 4 to September 28, about 76,000 tons of corn and soybeans moved upbound per week.
This is atypical as local old crop grain in the Cornbelt States can usually supply the needs of Midwest buyers during the pre-harvest period.
However, during the same 8- week period, there were also about 130,000 tons of corn and soybeans and 139,000 tons of wheat that moved downbound per week.
Barge operators have expressed some concern that there will be limited water levels in the Mississippi River during the harvest season, which may result in light loading and potential delays.
However, as of October 31, a large weather system will bring heavy precipitation to the Ohio and Lower Mississippi River Valleys.
This may alleviate some concerns for the near future regarding limited river levels.
Throughout the year, there have been significant extremes in water levels on the Mississippi River.
Water levels in St. Louis, MO, started the year with extreme drought conditions and changed to flood conditions (above 30 feet) by mid-Summer.
River levels then drastically declined back to drought conditions just before harvest season.
Late October barge rates have been influenced by the low water conditions, but not as severely as the extremely low water conditions that existed this time last year.
St. Louis barge rates have averaged $22.50 per ton for the last half of October, compared to $24.86 per ton last year.
Secondary Railcar Market Intensifies
Weekly graincar loadings averaged about 4,000 carloads less than the 3-year average for the first 39 weeks of 2013.
However, the gap has narrowed significantly since then, with carloads for the week ending October 19 (22,360), only 156 below the 3- year average.
Tight grain supplies following last year’s harvest kept weekly carloadings below average.
However, a record corn harvest, strong export demand for soybeans and wheat, and slower rail service due to track maintenance are creating a huge premium for securing adequate railcars in both the non-shuttle and shuttle markets.
Not since the fall harvest of 2010 when the Russian grain export ban unexpectedly increased demand for domestic rail capacity have bids in the secondary rail market commanded such high premiums.
The most recent secondary bids/offers for delivery of empty railcars in November are trading at $416 on average and as high as $733 for non-shuttle trains and at $1,100 on average and as high as $1,675 for shuttle trains.
In comparison, bids/offers reached a high of $1,100 for non-shuttle trains and a high of $1,900 for shuttle trains during October 2010.
Increased Bulk Shipments Pushed Up Ocean Freight Rates
Ocean freight rates for shipping bulk commodities, including grain, increased between the second and third quarters of 2013 due to increased iron ore imports by China and a surge in U.S. grain exports.
The cost of shipping grain through the U.S. Gulf to Japan was $47.79 per metric ton (mt)—4 percent more than the previous quarter, but 3 percent less than a year ago and 13 percent below the 4-year average.
The cost of shipping from the Pacific Northwest to Japan was $26.63 per mt—11 percent more than the previous quarter, 1 percent over a year ago, and 12 percent less than the 4-year average.
As of September, 539 dry bulk vessels were delivered so far this year, representing 44.5 million deadweight tons (mdwt) of capacity.
Of the newly delivered vessels, 177 were Panamaxes, representing 14.4 mdwt of capacity.
Diesel Fuel Prices Slow After Volatile End of Summer
Over the past quarter, weekly on-highway diesel fuel prices have fallen 4 cents, landing at $3.87 per gallon during the week ending October 28.
Most of this decrease was in the past 7 weeks after a sharp increase in late August in response to disruptions to oil production in Liberia and other oil producing nations.
The oil market has since slowed; the EIA reports, “the return of some Libyan production and declining refinery runs during September helped put downward pressure on crude oil prices.”
Diesel fuel along with crude oil prices are forecast to continue to decline through the end of the year.
EIA projects diesel fuel prices to average $3.93 per gallon in 2013 and $3.76 per gallon in 2014.
1 As measured by downbound tonnages at Mississippi River Locks 27, Ohio River Locks and Dam 52, and Arkansas River Lock and Dam 1. Data is provided to the USDA by the U.S. Army Corps of Engineers.
For more information, call Surajudeen (Deen) Olowolayemo, USDA, at 202-694-3050.