June Grain Stocks and Transportation Demand in 2017
Date Posted: July 13, 2017
This article is reprinted from the USDA's July 13 Grain Transportation Report.
The demand for grain transportation closely ties to grain production and storage.
A large harvest translates both into an immediate demand for transportation, as farmers sell newly produced grain, and into a delayed demand for transportation, as farmers and elevators store grain to be sold and shipped in the future.
As the marketing year progresses, there is an increased incentive to sell grain in order to empty storage bins before the next harvest.
The intensity of the incentive to empty bins throughout the year depends partially on the quantity of stocks currently in storage and partially on expectations about the upcoming harvest.
Therefore, the magnitude of the previous harvest, the degree to which grain is stored, as well as expectations about the upcoming harvest, all help determine the pattern of transportation demand throughout the year.
From this perspective, this article looks at: (1) the connection between grain stock disappearance and transportation demand through the first half of 2017; (2) the distribution across States of grain stocks reported by USDA in June 2017; and (3) expectations about the upcoming harvest and how it may affect transportation demand.
Grain stocks in June 2017 were higher than previous years, but USDA projects the upcoming harvest to be smaller than previous years.
A Look Back
Abundant grain stocks at the end of calendar year 2016 were likely an important factor behind transportation patterns throughout the first half of 2017.
High ending stocks imply the need to empty bins over time, which drives transportation demand.
According to the Grain Stocks report—released by USDA’s National Agricultural Statistics Service (NASS) on June 30, 2017—grain stock disappearance between December 2016 and June 2017 was 9 percent higher than the previous year and 8 percent higher than the prior 3-year average.
Accordingly, grain movements, reflected in rail and barge shipments, have been high and well above average so far this year (see June 22, 2017 Grain Transportation Report (GTR)).
June Grain Stocks
Even with the high December to June rail and barge shipments, there were substantial stores of grain in early June.
Together, commercial facilities and farmers held over 7.6 billion bushels (bbu) of grain (including corn, soybeans, sorghum, and old crop wheat, barley, and oats) in storage on June 1, 2017, up 12 percent from the same time last year, and 28 percent higher than the prior 3-year average.*
Stocks in June have increased every year since 2013 and, over the same span have occupied a growing share of the Nation’s grain storage capacity.
High grain stocks could sustain transportation demand over the next several weeks, as agricultural shippers and farmers continue to ship old crop (2016) and prepare space for the fall corn and soybean harvests.
With over 3.4 bbu as of June 1, 2017, grain stocks on farms in the United States are 31 percent above the prior 3-year average, suggesting that large volumes of grain may yet enter the supply chain this summer.
Most of the June 2017 grain stocks were concentrated in the Midwest (see Figure 1).
The top four States— Iowa, Illinois, Minnesota, and Nebraska—accounted for almost 52 percent of the total stocks.
Six States saw increases of over 100 million bushels (mbu) each as of June 1, 2017 compared to the prior 3-year average.*
Several States had significant increases in grain stocks from the previous year.
For example, Oklahoma had 65 percent more grain in storage, followed by Kansas (+48 percent), North Dakota (+39 percent), and Wisconsin (+38 percent).
Such increases highlight possible changes to typical transportation patterns, as these States had relatively more grain available to move than the same time in past years.
A Look Forward
High grain stocks could contribute to robust transportation demand this summer.
The on-going harvests for small grains (e.g., wheat, barley, and oats) could also boost the demand for grain transportation, as additional volumes from these grains add to the supply chain.
For example, railroads—the primary mode for wheat and barley shipments—typically haul the majority (about 32 percent) of their annual wheat tonnage during the third quarter.
Nevertheless, demand from “new crop” small grains may be somewhat tempered in 2017.
According to the NASS July Crop Production report, USDA projects wheat and barley production to fall 24 and 28 percent, respectively, this year compared to 2016.
Winter wheat, the largest class of wheat in the United States, could decrease 23 percent from 1.67 bbu grown in 2016 to 1.28 bbu in 2017, with reductions of 143 mbu in Kansas (36 percent of the total U.S. decline) and 46 mbu in Oklahoma (12 percent).
So far, farmers in major wheat-producing States have harvested 67 percent of the winter wheat crop through July 9, slightly ahead of the prior 5-year average and 14 percentage points more than the week ending July 2.
Grain movements typically accelerate significantly in the fall, as farmers harvest corn and soybeans.
However, grain transportation demand may lessen this fall relative to a year ago, which saw record corn and soybean crops.
USDA currently forecasts smaller corn, soybean, and grain sorghum crops for the 2017/18 marketing year.
According to the July WASDE report, USDA projects the United States will produce 18.9 bbu of these commodities in 2017, down 5 percent from 2016.
Shifts in acreage may give an early indication of possible changes in grain originations in the new marketing year for corn and soybeans, which begins September 1.
Additionally, from a transportation demand perspective, this may serve as a counterbalancing factor to large stocks.
That is, the expectation of a relatively smaller harvest may weaken the incentive to empty bins and therefore weaken the demand for transportation over the summer.