Insights - Winter Update 2014 - 2

" We're one

weather event
away from
disaster

''

to offset higher freight costs to higher prices paid for the same
grain by mills to cover escalating basis levels, especially in the
Upper Midwest and across the Chicago gateway.

What may 2014-15 have in store?
The most critical component of the shipping season - the severity of
winter weather - also remains the greatest unknown, although the
Farmers' Almanac has called for a "hard" winter. In early November
one weather model indicated the Upper Midwest and Midwest
may see cooler than normal temperatures but possibly not as much
snowfall as last year during the December-February period. Severe
cold can be just as bad for railcar movement as snow.
What is known is that U.S. 2014 corn and soybean crops will
be record large and are sure to tax truck, rail, barge and export
terminal capacities at harvest and beyond.
The U.S. Department of Agriculture in October said U.S.
production of corn, soybeans and wheat was expected to total a
record 20,437 million bus in 2014, up 5% from 2013. Prices were
lower. Nearby futures prices in early November were down about
15% for soybeans, 20% for corn and 20% to 25% for wheat from a
year earlier. U.S.D.A. projected average prices paid to farmers in
2014-15 would be down about 15% for all wheat and about 25%
for corn and soybeans from 2013-14.
Combined exports of the three major commodities in 2014-15
were forecast in October at 4,375 million bus, down 8%
from 2013-14, taking some pressure off transport
needs to move grain to Gulf and Pacific
Northwest ports, and curbing demand for
ocean freight. Combined corn and wheat
domestic demand was forecast higher
than last year and exports lower due
to ample global supplies of both
grains. Domestic use and exports
of soybeans, meanwhile, both were
forecast record high.
"According to U.S.D.A.'s modal share
analysis, increased domestic demand is
likely to increase demand for trucking
services and increased soybean exports
are expected to increase demand for rail

2

and barge service," the U.S.D.A. said. "Adequate river levels
should help barge grain movements, although at higher costs.
Ocean freight rates are expected to remain low, and lower diesel
prices could moderate truck rate increases that typically occur
during harvest."
Demand to secure rail and barge freight drove prices to record
highs earlier in the fall, in part as grain shippers competed to
lock in freight out of fear railcars and barges may not be available
during the peak corn and soybean harvest period of October
and early November. Farmer selling of grain and shipment of
grain from the country slowed amid fears that freight may not
be available if it wasn't already booked, and some shippers were
unwilling to book rail freight at historically high prices. As the
harvest progressed, those rates declined from historic highs,
thanks largely to Mother Nature, but still were well above year
earlier and average levels.

Rail performance still
greatest concern
While railroads were expected to spend about $26 billion in
2014 and have reinvested about $550 billion since 1980 on crews,
locomotives, tracks and other improvements, the agricultural
industry seems to be in a "we'll believe it when we see it"
mentality, and rightly so since this year's corn and soybean crops
are estimated to be even larger than in 2013 when rail service was
poor. Demand for grain transport likely will continue to increase
while other demands for rail service also have grown and are not
expected to ease, with the possible exception of coal, which still
is the largest commodity moved by rail.
Year-to-date rail carloads through Nov. 1 totaled 24,289,819,
up 4.5% from the same period last year, according to data from the
American Association of Railroads. Carloads in all 11 categories
tracked by the A.A.R. were up for the year, with double-digit
gains for grain at 878,825 carloads, up 15%, and petroleum at
672,118 carloads, up 13.4%. The single largest use of rail is for
intermodal (truck-sized containers on flatbed railcars) shipping,
with the year-to-date total at 11,459,079 units, up 5.5% from last
year and equal to 47% of total carloads.
In its Oct. 2 Grain Transportation Report, the U.S.D.A.
attempted to quantify the impact of rail service delays.
"The current rail service problems have exceeded previous
events in magnitude and duration, including Hurricane
Katrina, which caused major disruptions throughout the entire
agricultural transportation network," the U.S.D.A. said. "Typical
unexpected shifts in demand and supply have lasted less than 20
weeks before they were resolved, with the exception of Hurricane
Katrina, which took roughly 28 weeks. In contrast, the current
rail service problems have extended over twice as long-about 58
weeks-with no end in sight."
"Until railroads are able to increase the supply of
rail service to grain shippers through capacity
expansion projects or other innovations, prices
in the secondary railcar market are likely
to remain at historic levels, indicating
inadequate rail transportation options to
meet current demand," the U.S.D.A. said.
Average bids in the shuttle and nonshuttle secondary railcar markets were
at record highs in late September. The
average secondary railcar bid/offer per
car of $4,625 above tariff (shuttle trains)
for October was up $1,200 from a week
earlier and up $3,613 from a year ago
and at its peak, the U.S.D.A. said. Shuttle
Insights - Winter Update 2014

Table of Contents for the Digital Edition of Insights - Winter Update 2014
