This article has been reprinted from the Feb. 28 USDA Grain Transportation Report.
On February 21-22, USDA held its 95th Annual Agricultural Outlook Forum, in Arlington, VA.
The theme of the forum was “Growing Locally, Selling Globally.” Keynote addresses were given by the U.S. and Mexico Secretaries of Agriculture and Canadian Minister of Agriculture.
Additionally, several sessions were held on a variety of topics, including outlooks for commodities, food prices, farm incomes; international trade and selling globally; innovation in agriculture; linking producers to consumers, among others.
This article presents key takeaways on: (1) the overall economic outlook for agriculture and foreign trade, (2) issues in agricultural transportation, and (3) the outlook for grains and oilseeds for marketing year 2019/20.
Agricultural Economic and Foreign Trade Outlook
According to Robert Johansson, USDA’s Chief Economist, farmers are facing trade and market uncertainties.
Following are some of the specifics he cited.
The International Monetary Fund lowered its projection of the growth in global gross domestic product to 3.5 percent for 2019.
However, the U.S. economy remains strong and the dollar has strengthened since last February.
Trade to China is expected to fall in 2019, but trade to other countries is expected to grow.
Current total U.S. soybean exports fell by 13.5 million metric tons (mmt) in 2018/19, compared to last year, including a 22 mmt decline in exports to China. Soybean prices fell about 20 percent following the trade dispute.
While farmer debt financing is high in real terms, debt-to-asset ratios remain low.
Real agricultural prices are likely to decline over the next 10 years, as production outstrips demand.
Issues in Agricultural Transportation
Grain farmers are concerned about the condition of inland waterways and the funding for rehabilitation, modernization, and maintenance.
Rail shippers are experiencing service disruptions due to weather and demand volatility of commodity traffic.
Due to capacity constraints, trucks are sometimes not available, and rates have climbed sharply.
A panel with representatives from the truck, barge, and rail modes, examined various challenges shippers currently face in moving farmer products to market.
The following is a synopsis of the three presentations (which have been posted online).
Presentation I: “Agricultural Trucking Challenges”
Jon Samson, Executive Director of the Agricultural and Food Transporters Conference of the American Trucking Associations, identified capacity and highway funding as two of the biggest issues facing the trucking industry.
Regarding highway funding, he advocated for increased fuel taxes with the understanding that focus is also being applied to a tax on vehicle miles-traveled.
He noted that all modes of transportation will grow through 2020, but the truck driver shortage is expected to increase dramatically.
Samson said the trucking industry currently needs about 50,000 to 55,000 additional drivers to meet current demand.
He further elaborated the ongoing driver shortage has contributed to higher pay and an increased emphasis on respecting drivers’ available working hours, during loading and unloading.
Samson said truck drivers can be 18 years old and drive within their own state but need to be 21 years old to cross state lines.
Samson said the U.S. Department of Transportation has a pilot program which will allow 18-20-year-old former military or current reservist drivers to cross state lines, but there are not many candidates in the program.
He said hurdles in moving forward with lowering the age include prohibitive insurance costs and concerns about teen truck drivers on the road.
Samson also mentioned the recent flexibility in the driver 150 air-mile hours of service agricultural exemption, and the need for additional flexibility for driver rest periods and split sleeper berth.
Presentation II: “Outlook for Barge Supply, Grain Demand, and Inland Waterway Issues”
Ken Eriksen, Senior Vice President at Informa Economics IEG, explained some of the many supply and demand factors influencing the flow of grain and oilseeds, from surplus areas to deficit areas.
He said a key factor for examining the grain flows is the actual number of barges used to haul agricultural products, saying that having a sufficient supply of barges is critical for maintaining adequate barge transportation.
Eriksen said Informa surveys barge companies to collect data on the number of dry covered hopper barges used to haul grain, as well as tank barges that transport vegetable oils and ethanol.
He further elaborated that while the barge fleet is adequate for today’s market, there has been a drastic reduction in the barge manufacturing market.
In 2018, Jeffboat, the second largest builder of barges, closed it operations.
Future expansion of the barge fleet will be limited, if there is a demand for additional barges.
However, if there are sustained increases in barge rates, there could be pressure to ramp up additional barge manufacturing capabilities.
Eriksen also emphasized that inland waterway projects are multi-year projects and current annual appropriations from Congress are not efficient for their timely construction and rehabilitation.
He said a major issue for the inland waterways is the lack of funding for a backlog of projects that, according to the Waterway Council Inc., will need an estimated $9 billion to complete.
Eriksen also promoted the advantages of deepening port drafts to accommodate larger vessels, citing past improvements on the Columbia River and possible benefits of increased dredging of the lower Mississippi River.
Presentation III: “Grain Rail Service in an Uncertain World”
Greg Guthrie, Director of Agricultural Products at BNSF Railway (BNSF), showed the composition of BNSF’s freight portfolio and that of the rail industry.
Railroads move a variety of products, such as coal, chemicals, agricultural commodities, and food.
Coal is still the largest component of rail carload traffic, but volumes have fallen from about 7 million carloads in the mid-2000’s to just over 4 million carloads in recent years.
At the same time, there has been a rise in intermodal traffic, which rose from about 11.5 million units in 2005 to 14.5 million in 2018, according to Association of American Railroad data.
Grain is an important component of rail’s total shipments.
For BNSF, grain is about an 8 to 9 percent share across the network, but some corridors (such as the Northern Corridor) see much denser volumes.
Notably, grain is about 20 percent of Canadian Pacific’s traffic mix for its U.S. operations.
Guthrie described how railroads face a variety of challenges in moving this mix of traffic, two of which are weather and demand volatility.
Low temperatures require shortening train lengths to maintain airbrake continuity, which can mean doubling the number of locomotives and crew to move the same amount of freight.
In additional to weather difficulties, transportation demand from different commodities can vary significantly both across time and across routes.
Typically, the Pacific Northwest sees a large spike in soybean exports from September to October, which was not realized in 2018.
While some of the shortfall was mitigated by an increase in corn, Guthrie noted that volatility makes planning and allocating resources and investments difficult.
Guthrie emphasized rail is very capital-intensive, and unlike other forms of transportation, infrastructure investments are almost entirely privately funded.
Within this context, he detailed some of BNSF’s investment trends.
BNSF invests in excess of $2 billion annually in maintenance alone.
Along its Northern Corridor, which is critical in the movement of agricultural products, BNSF has invested $6.1 billion from 2014 to 2018 ($1.8 billion on expansion and $4.3 billion on maintenance).
Over the years, BNSF and its customers have made substantial investments in shuttle infrastructure.
According to Guthrie, from 2000 to 2018, BNSF went from 69 to 248 shuttle originations and 32 to 103 shuttle destinations.
Much of the BNSF’s grain shuttle freight (almost two-thirds) originates in the Upper Plains states of Minnesota, North Dakota, South Dakota, and Montana.
A majority of BNSF shuttles terminate in the Pacific Northwest (66 percent), with portions to the Gulf (8 percent), Mexico (7 percent), California (5 percent), and other areas.
Early Outlook for 2019/20
As part of the annual Agricultural Outlook Forum, USDA released its outlook reports for grain and oilseeds, livestock and poultry, and other commodities.
The commodity outlooks contain the latest projections on prices, supply, and demand for the new marketing year, 2019/20.
USDA projects a net increase of about 119 million bushels (mbu) of corn, soybeans, and wheat production in 2019 compared to the year before, which could boost aggregate transportation demand.
More specifically, USDA projects increases from corn (470 mbu) and wheat (18 mbu), but a drop in soybean production (369 mbu).
In terms of type of movement—domestic or export—USDA forecasts domestic movements of corn, soybeans, and wheat to increase 163 mbu (+125 for corn, +18 mbu for soybeans, and +20 mbu for wheat).
Collective exports could increase 150 mbu, as higher soybean and corn exports (+150 mbu and +25 mbu, respectively) exceed a 25 mbu drop in wheat exports.