This article has been reprinted from the Sept. 26 USDA Grain Transportation Report.
According to performance data from the Surface Transportation Board, rail service has improved compared to earlier in the year and prior years.
Railroads have moved less grain compared to last year, and rates in the secondary auction market have been correspondingly low. Large amounts of sediments deposited during the flooding period have continued to cause navigation difficulties on the Mississippi River and its tributaries.
Ocean freight rates have trended upward lately. Diesel fuel prices have declined steadily from May until mid-September. Although total grain (corn, soybean, and wheat) production for 2019/20 is projected down slightly, total exports are projected to remain stable.
Improved Service but Low Grain Carloads for Rail
From a relative peak in mid-May, rail shipments of grain have generally remained below average the past few months (GTR fig. 3).
Carloads originated by U.S. Class I railroads in June, July, and August were down 5 percent from the same months last year.
As of the week ending September 14, they were also down 5 percent YTD from 2018.
Lower quantities of rail freight for grain were generally correlated with lower rail rates, reflected in the secondary auction market for shuttle service.
Average bids/offers for delivery of railcars in May through September were lower than their respective months a year ago, especially in August and September.
Trading for delivery of railcars in October is around -$170 per car, down $700 per car from the prior 3-year average (GTR fig. 4).
Railroad performance data from the Surface Transportation Board show rail service has improved, on average, from recent months and compared to prior years.
So far in September, average weekly grain train speeds are up 5 percent from March.
Grain train speeds are also 9 percent above September 2018 and 2 percent above the prior 3-year average.
Average weekly origin dwell times so far in September are down 53 percent from March, down 37 percent from last year, and down 28 percent from the prior 3-year average.
Similarly, unfilled grain car orders for manifest service are down 91 percent from their peak in April of this year, also down 49 percent from September of last year.
Inland Waterway Navigation Difficulties Continue
In late 2018 through mid-2019, floods and high water disrupted barge traffic on the Mississippi River and its tributaries.
The high water resulted in large amounts of sediment deposited throughout the river system.
Although the effects have not been as dramatic as those from the flooding, which entirely closed locks near St. Louis, they have complicated commerce on the inland waterways.
After high water levels from flooding, the U.S. Army Corps of Engineers (USACE) must typically dredge to clear the sediment.
However, dredging operations have been complicated by weather such as fog, which has slowed the process.
Lock outages, whether planned for maintenance or unplanned, have contributed to the slowdown.
In the State of Mississippi, the river was closed at Victoria Bend from September 4 to September 12, with the queue of barge tows numbering above 110 at its maximum.
Navigation difficulties have reduced volumes of grain traveling through the Mississippi River system.
As of September 21, the year-to-date downbound tonnage of grain shipments through the locking portion of the river was 19.5 million tons, only about 68 percent of the amount of grain shipped through the same locks by this time last year.
Corn, which is primarily grown in the middle and upper portions of the Mississippi River Basin, has experienced the largest reduction from last year.
The year-to-date total of 9.1 million tons is nearly 50 percent lower than during the same time last year.
Figure 1 shows the weekly totals for grain through the final locks on the Mississippi, Ohio, and Arkansas Rivers in 2019, compared with a 3-year average for corresponding weeks.
In addition, the number of grain barges unloaded in the New Orleans region also provide a useful measurement for the volume of grain being exported.
The Federal Grain Inspection Service reports an average of 560 barges unloaded per week in 2019, a 25-percent decrease from the weekly average in 2018 and 23 percent below the average for the previous five years.
Barges originating below the locking system typically represent about 33 percent of the unloaded barges, but so far in 2019, they amount to 43 percent.
These weather and hydrological events have also affected shipping rates.
The navigation restrictions also slowed upbound traffic, which reduced the available barge supply and produced high shipping rates during periods when demand is high. These
effects produced unusually high rates on the mid-Mississippi in July.
At other times, the traffic disruptions aggravated already low demand for barge service.
Despite the lower shipping rates during these periods, the number of shipments remained low.
Dry-Bulk Freight Rates Trend Upward
After declining briefly during January, ocean freight rates for shipping bulk commodities, including grain have trended upward since the beginning of February.
As of September 19, 2019, the cost of shipping bulk grain from the U.S. Gulf to Japan was $52.25 per metric ton (mt), a 38-percent increase since the first week in February, a 12-percent increase from the same period last year, and a 36-percent increase from the 4-year average.
The cost of shipping from PNW was $29.50 per mt, a 37-percent increase since the first week in February, a 16-percent increase from the same period last year, and a 40-percent increase from the 4-year average.
The ocean freight rate for shipping from the U.S. Gulf to Europe was $21.00 per mt.
This amounts to 31-, 5-, and 24-percent increases from the first week in February, the same period last year, and the 4-year average, respectively.
The rates have been increasing because of a relative increase in bulk trades, such as coal and iron ore (see July 25, 2019 Grain Transportation Report).
In addition, China’s rising importation of soybeans from Brazil increased haulage length and benefited dry bulk vessel operators.
Also, upward pressure on ocean freight rates has resulted from slow rates of dry bulk fleet expansion caused by the International Maritime Organization’s regulations on ballast water scheduled to take effect in January 2020 (see June 20, 2019 and July 25, 2019 GTR).
Year-to-Date 2019 Diesel Fuel Prices
The year-to-date average U.S. On-Highway Diesel Fuel Price is $3.055 per gallon.
Prices have ranged from just under $3 per gallon in January to the peak of $3.17 in May. Since May, prices have declined steadily, falling more than 16 cents per gallon through mid-September.
The most recent Short-Term Energy Outlook, released in early September, reported, “Even though distillate consumption declined in August to below the five-year range, exports increased and production declined, helping to keep inventories lower than the five-year average.”
During the week ending September 23, average diesel fuel prices jumped more than 9 cents per gallon in response to the attack on oil fields in Saudi Arabia.
The fuel market will be closely monitoring the impact of this supply disruption.
Outlook for 2019/20
According to the September World Agricultural Supply and Demand Report (WASDE), production of corn, soybeans, and wheat for 2019/20 is projected to reach 19.4 billion bushels, down 7 percent from the past year.
Total exports of the three major grains are expected to reach 4.8 billion bushels, up 1 percent from 2018/19 (see table).
Production of corn is projected to reached 13.8 billion bushels, down 4 percent from last year.
Soybean production is projected to reach 3.6 billion bushels for 2019/20, down 20 percent from last year.
Wheat production is expected to increase 5 percent from 2018/19. At the end of the 2018/19 marketing year, export sales commitments of corn were 6 percent below the USDA forecast.
Soybean commitments, however, were 6 percent above expectations.
Year-to-date wheat commitments for the new 2019/20 marketing year are up 23 percent from the previous year (GTR, tables 13-15).
Demand for U.S. wheat has remained strong because of lower price expectations and lower production in other global production areas.
Projected stock-to-use ratios are below last year for each of the three grains, reflecting lower ending stocks than last year.
Corn exports are projected to decrease slightly from last year in 2019/20, but soybean and wheat exports are expected to increase 2 and 4 percent, respectively (see table).
Already suffering from high water conditions this year, U.S. grain production and movement of grain are expected to slow further because of a later than usual harvest this fall.