Lower Grain Production Offsets Higher September Stocks, Likely to Impact Transportation Demand

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

Grain stocks and storage are important factors behind grain transportation demand.

Adequate storage is key to mitigating transportation bottlenecks during harvest and smoothing the demand for grain transportation over the marketing year.

All else equal, locations with high grain supplies are those most likely to see increased shipments, as grain moves from areas of supply to destination markets.

Similarly, areas with relatively scarce storage face more pressure to ship harvested grain immediately.

This article examines fall grain supplies and storage capacity across the country and discusses implications on transportation.

A Look at the National Level

The amount of grain available to move comes from that which is currently held in storage and new-crop harvests.

Regarding grain held in storage, U.S. farmers and commercial facilities stored 5.7 billion bushels (bbu) of grain as of September 1, 2019, up 13 percent (+0.6 bbu) from the 3-year average.

Notably, soybeans stocks (old crop) were up 108 percent from a year ago.1 In addition, ongoing new-crop harvests of corn, soybeans, and grain sorghum boost movable grain supplies.

Farmers typically harvest these crops after September 1.

As of October 6, 2019, 15 percent of the corn acres had been harvested (12 percentage points behind the 5-year average), and the soybean harvest was 14 percent complete (20 percentage points behind).2

According to the latest (September) NASS projections, U.S. farmers could harvest 17.8 bbu of corn, soybeans, and grain sorghum for 2019—9- percent lower (-1.7 bbu) than the 3-year average.

Because the drop in (post-September 1) grain production estimates more than offset the higher (September 1) grain stocks, grain supplies are, on net, lower than past years.

More specifically, fall 2019 grain supplies are 23.7 bbu. This is 1.1 bbu (4-percent) lower than the 3-year average.

Reduced grain supplies mean less product and, therefore, lower demand for transportation over the course of the marketing year (MY).

In addition, less grain supply could ease bottlenecks during harvest, because there is less competition for limited elevator space.

Further allaying possible constraints on storage and transportation this harvest, farmers and commercial facilities continued to add storage capacity from last year (up 1 percent).

Looking at the difference between grain supplies (September 1 grain stocks plus post-September 1 grain production) and grain storage shows the “storage deficit” has declined over the years, from -0.8 bbu in 2016 to +1.3 bbu in 2019.

Thus, in aggregate, this fall is a story of high stocks, sizeable (but not record) grain production, and ample storage.

However, this national-level view masks important geographic differences, as the next section discusses.

A Look at the State Level

With sizeable corn and soybean crops expected in 2019, the Midwest holds much of the Nation’s grain supplies (fig. 1, left pane).

States with the highest supplies, such as Iowa, Illinois, Nebraska, and Minnesota should see ample demand for truck, rail, and barge service for hauling grain.

Perhaps more illustrative is a comparison of 2019 grain supplies to the prior 3-year average across the United States (fig. 1, right pane).

This map shows where transportation demand could be higher or lower than average in a particular State.

For instance, although grain supplies are high in Illinois (relative to other States, as shown in the left pane), supplies are 0.2 bbu below its recent norm.3

Conversely, States like Kansas and Nebraska are projected to have grain supplies that are larger than in their recent past.

The greater supplies, along with the large rail presence in these States, could mean additional carloads in MY2019.

Next, figure 2 combines grain supplies with grain storage capacity to show where grain storage is relatively scarce or abundant as the 2019 corn and soybean harvests progress.

The left pane shows storage surplus and deficit areas for 2019, and the right pane compares 2019 to the prior 3-year average.

Kansas and Nebraska could see the largest shortfalls in storage, with supplies exceeding total storage capacity each by 0.3 bbu (fig. 2, left pane).

Less storage puts more pressure on the transportation system, since more of the harvested production will need to be brought immediately to market.

As indicated in figure 2 (right pane), the shortage of storage in Kansas and a few surrounding States is a little larger than in past years.

Notably, several States—such as Indiana, Illinois, Iowa, Minnesota, Ohio, and South Dakota—have a much higher availability of storage this fall than in their recent past.

In fact, storage availability is over 0.2 bbu higher in each of these States than their 3-year average.

Grain Supplies, Storage Availability, and the Demand for Transportation

The Surface Transportation Board’s rail service data confirms these relationships and illustrates the importance of grain supplies and storage for rail demand.

Figure 3 plots the relationships among grain supplies, storage availability, and 4th quarter grain carloads at the State level.

Each point in the plot represents a State and year. Each of the axes show the change from the prior year.

The left pane plots the change in grain supplies versus the change in grain rail carloads by State.

It shows how differences in supplies (e.g., higher or lower) translate into differences in rail movements.

The right pane plots the change in storage availability versus the change in rail carloads by State, showing the relationship between storage abundance (or scarcity) and rail movements.

Both figures confirm the importance of grain supplies for transportation demand.

As shown in the left pane of figure 3, higher grain supplies are positively correlated with increased rail volumes.

In States where supplies are higher this year than last year, carloadings are likely to be higher as well.

The same is true for States with a change in available storage.

In those States where storage is scarcer (less of a surplus or more of a deficit), figure 2 confirms those States are likely to see higher rail demand.