Insights - Winter Update 2014 - 6

with spot rates ranging from 883% to 1,100% of
the benchmark tariff," the U.S.D.A. said in its
Oct. 2 Grain Transportation Report.
Barge freight rates to move grain to the
U.S. Gulf from the lower Mississippi River in
late September were $33.50 per ton, up 19%
from the prior week, up 86% from a year ago
and 99% over the three-year average. The rate
from the upper Mississippi River to the Gulf
was $54.66 per ton, up 16% for the week, up 45%
for the year and 54% over the average. On the lower
Illinois River, southbound barge freight cost $49.51 per
ton, up 29% for the week, up 79% from last year and up 91% from
the three-year average.
Barge rates began to increase in late August before peaking in
late September. By late October, aided by the rain-delayed harvest,
barge freight rates had decreased from the highs but still averaged
33% to 60% above the five-year average in October and were 35%
to 59% above average for November delivery, the U.S.D.A. said.
Lower Illinois River rates were 73% of tariff, down $9 a ton from
late September.

Ocean freight, diesel prices lower
If there is a "bright" spot for grain shippers, it would be ocean
freight as increasing fleet sizes continue to outpace demand. New
orders for Panamax vessels, the type usually used to ship grain, are
on a record pace with the fleet size growing 9% annually, according
to the U.S.D.A.
The cost of shipping bulk grain from the U.S. Gulf to Japan at
one point this fall was $43.20 per tonne, down 24% from January,
down 5% from a year ago and 18% below the four-year average, the
U.S.D.A. said. The cost to ship grain from the Pacific Northwest was
$24.05 per tonne, down 15% from January, down 2% from last year
and 17% below the four-year average.
"Ocean rates for shipping bulk commodities, including grain,
are currently low and are likely to remain moderate during the fall
harvest," the U.S.D.A. said. Even though the export pace of soybeans
increased in October and November, excess vessel capacity was
sufficient to absorb the volume with little impact on freight rates.
One strong area of ocean freight has been container shipments.
Containerized grain exports in the first half of calendar 2014 were
a record high 299,000 twenty-foot equivalent units, up 5% from
the same period of 2013 and 29% above the five-year average, the
U.S.D.A. said. The major product shipped by container (58% of the
total) was distillers dried grains to China.
Another factor not contributing to higher grain transportation
costs this year is fuel prices. The U.S. average on-highway diesel
price in the first week of November was $3.623 per gallon, down
25c, or 6%, from a year ago and down 40c, or 10%, from the March
2014 high of $4.02 a gallon, according to the Energy Information
Sponsored by

www.intlfcstone.com

AVERAGE ON-HIGHWAY
DIESEL FUEL PRICE

3.623 / Gal. on Nov. 3
-25¢ from a year ago
-40¢ from 2014 high

Administration of the U.S. Department of Energy. The U.S. average
diesel price is used by railroads to determine fuel surcharges, which
are added to freight rates and passed on to shippers. While the
trucking industry also adds fuel surcharges, the amount generally is
determined by individual companies and is not uniform.
With corn, wheat and soybean prices down sharply from a
year ago, many farmers may opt to store grain rather than sell it
immediately, thus reducing grain shipping needs somewhat, or some
may be forced to store grain due to the lack of shipping options.
It's known that farmers have been adding storage capacity in recent
years, but it's also known that on-farm capacity, as well as off-farm
space, still is inadequate to hold this year's record corn and soybean
crops as well as large corn carryover from the 2013 crop. That means
huge amounts of grain (mainly corn) will have to be "stored" in piles
on the ground, and that is what producers and elevators are most
anxious to move to avoid weather damage and quality loss, which
occurred with increased frequency in the past season.
"The amount of grain production and grain stocks expected to
exceed permanent grain storage capacity this harvest season has
increased to an estimated 952 million bus (about 5% of the expected
harvest), the U.S.D.A. said in mid-October. The greatest shortages
are expected in South Dakota (236 million bus), followed by Indiana
(212 million), Missouri (171 million) and Illinois (147 million).
It will be weeks if not months before the markets know how the
various modes of transportation, especially rail, will perform this
season, with much depending on the severity of winter weather.
In the meantime, the agriculture industry will hope for the best
amid what one trader called a general sense of fear about freight
markets this winter. And the industry realizes shipping problems
won't end next spring. One baking executive said he sees the rail
issue as "not going away quickly," but rather requiring a three to
five year solution.
In the meantime, the only alternative producers, shippers and
food processors may have is to seek alternative or creative ways to
minimize the risk of higher costs caused by transportation issues.
- Ron Sterk, Senior Editor, Markets
Sosland Publishing Co.
Kansas City, MO
http://www.intlfcstone.com
Insights - Winter Update 2014

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