This article has been reprinted from the Dec. 5 USDA Grain Transportation Report.
In 2019, extreme weather challenged shippers and farmers alike, causing late harvests, navigation problems, and infrastructure issues that ultimately affected grain shipment volumes. Recently, however, conditions have improved.
Although as of November 30, year-to-date (YTD) grain carloadings down from a year earlier, rail service for grain shippers has been generally good over the past several months.
Despite the navigation difficulties on the Mississippi River for most of 2019, grain barge movements on the river system have improved lately.
Ocean freight rates for shipping bulk grain have remained relatively stable from the beginning of the year.
Likewise, diesel fuel prices have fluctuated only minimally throughout the year. According to the USDA’s World Agricultural Supply and Demand Report (WASDE) in December, total grain production and exports are projected slightly down for 2019/20.
Grain and Other Commodities Down for Rail in 2019
Rail freight volumes, across nearly every commodity, were lower so far this year than in 2018. According to the Association of American Railroads (AAR), total YTD traffic (which includes carloads and intermodal units) originated by U.S. Class I railroads is down 5 percent from last year.
Grain is down almost 6 percent YTD.
In a recent press release, AAR explained, “Rail traffic continues to struggle because U.S. manufacturing is soft, trade disputes and the uncertainty they entail are ongoing, and economic growth abroad isn’t what it could be.”
Although grain carloads have increased substantially from yearly lows in mid-September, they are still below average (GTR fig. 3). Rail rates, as reflected in the secondary auction market for shuttle service, have been low for months.
Average bids/offers for delivery of railcars in August were around -$200 per car, down $338 per from a year earlier.
Bids/offers increased into September (-$117 per car on average) and October ($27 per car on average) but remained below 2018.
Trades for delivery of railcars in December have averaged around -$500 per car for the last 2 weeks, down substantially from the prior 3-year average (GTR fig. 4).
According to railroad performance metrics from the Surface Transportation Board, rail service for grain shippers has been generally good over the past several months.
Average weekly train speeds for grain increased 7 percent from July to November. Grain train speeds were faster in September, October, and November than in the same months in 2018 and 2017.
Average weekly origin dwell times for grain have also decreased, resulting in more timely service for shippers.
Origin dwell times averaged about 23 hours in July, before falling to 17 hours in August, where they have remained since.
Waterways Grain Traffic Has Yet to Meet Average Volume
The 4 most recent weeks have shown the year’s strongest performance for grain transiting the locks, including (for the first time in 2019) topping the 3-year average for the same weeks.
November 10 to December 7 (weeks 46 through 49) was the 4-week span in 2019 with the largest traffic volume.
Over 13 percent of the YTD volume shipped through the locks during this time.
Nonetheless, YTD shipments of 27.47 million tons trail the 2018 YTD numbers, and matching the total 2018 volume by the end of 2019 would require improbably high volumes for the rest of the year.
With large portions of the Mississippi closed for the winter, shippers may need to store grain until the river reopens in 2020.
The only other year this decade with a lower YTD total in the 49th week of the year was 2013. Navigation difficulties stymied most of the 2019 barge market.
Recently, though, barges have more easily reached the ports in the New Orleans area. Navigation has improved because flooding has receded, dredging has removed shoals, and major locks have reopened.
In early October, the Arkansas (MKARNS) river system opened to allow traffic to its head of navigation in Catoosa, OK, though barge-tow-size restrictions remain in place.
The low volume of grain shipments is partly due to late harvests.
The same poor weather that disrupted navigation in the spring and summer also delayed planting.
Then, rain in the fall months prevented farmers from harvesting grain.
Delayed harvest has been a particularly difficult issue for corn.
Although in a typical December, the corn harvest would be near completion, it is still ongoing this December.
The National Agricultural Statistics Service indicates only 52 percent of the 2019 harvest had been completed by the beginning of November, in contrast with the average of the previous 5 years—75 percent.
Shortfalls in corn shipments explain nearly the entire decrease in grain shipments from 2018, as YTD corn volumes trail 2018 by 9.98 million tons.
Given volumes of soybeans and “other grains” (a category for grains such as rye, sorghum, and oats) are ahead of their 2018 numbers, the corn deficit actually exceeds the total YTD shortfall for all grain shipments of 8.35 million tons.
In the upper Midwest, a shortage of propane compounds weather-related difficulties.
To dry harvested grain, farmers prefer to use propane, and this year, this key farm input has been harder to obtain.
According to the Department of Energy’s Energy Information Agency , although overall U.S. supplies are plentiful, the upper Midwest’s late harvests and wetter grain (due to the weather) have created higher-than-typical demand for this time of year.
Suppliers are struggling to meet that demand because pipelines transporting propane to the region have limited capacity and are also used to transport other fuels and chemicals.
Dry-Bulk Freight Rates Below the Yearly Peak
After declining for 5 consecutive weeks, ocean freight rates for shipping bulk grain inched up slightly during the week ending December 5 but are still below the yearly peak reached on September 5.
As of December 5, the cost of shipping bulk grain from the U.S. Gulf to Japan was $46.75 per metric ton (mt), a 1-percent increase from the previous week, but an 11-percent decrease from the peak in September and a 1-percent decrease from January.
The cost of shipping from the Pacific Northwest was $25.25 per mt, a 2-percent decrease from the previous week, 16-percent decrease from the peak in September, and 1-percent increase from January.
As of December 5, the ocean freight rate for shipping from the U.S. Gulf to Europe was $19.50 per mt.
This amounted to a 5-percent increase from the previous week, an 8-percent decrease from its peak in September, and was unchanged from January.
It is uncertain how long the ocean freight rates will remain at these levels given the upcoming International Maritime Organization’s regulations on ballast water and low-sulfur emissions (IMO 2020) scheduled to take effect in January 2020 (see June 20, 2019 and July 25, 2019 GTR).
Year-to-Date 2019 Diesel Fuel Prices
The 2019 YTD average U.S. On-Highway Diesel Fuel Price is $3.056 per gallon.
Prices have ranged from just under $3 per gallon in January to the peak of $3.17 in May.
With only 3 weeks remaining, the price variations have narrowed in the fourth quarter, ranging between $2.97 and $3.08 per gallon.
EIA’s most recent Short-Term Energy Outlook expects crude oil prices will be lower on average in 2020 than in 2019 because of forecast rising global oil inventories, particularly in the first half of next year.
Outlook for 2019/20
According to the December WASDE, production of corn, soybeans, and wheat for 2019/20 is projected to reach 19.1 billion bushels, down 8 percent from the past year.
Total exports of the three major grains are expected to reach 4.6 billion bushels in 2019/20, down 3.1 percent from 2018/19 (see table).
Production of corn is projected to fall 5 percent from 2018/19, to 13.7 billion bushels.
Soybean production is projected to decrease 20 percent from 2018/19, to 3.6 billion bushels.
Wheat production is expected to increase 2 percent from 2018/19, to 1.9 billion bushels.
Currently, export sales commitments of corn are 45 percent below the same time last year because of slow demand and low prices.
On the other hand, total soybean export commitments are 8 percent above last year, and YTD wheat commitments for the new 2019/20 marketing year are up 6 percent from 2019/20 (GTR, Tables 13-15).
Demand for U.S. wheat has remained strong, owing to large U.S. stocks and tight supplies among major competitors.
In 2019/20, U.S. corn exports are projected to decrease 10 percent from 2018/19, mainly because of low U.S. prices.
Soybean and wheat exports are expected to increase 2 percent and 4 percent, respectively (see table). U.S. transportation demand for grain in the months ahead is expected to improve despite the slow harvest.