Market Matters Blog
Mary Kennedy DTN Basis Analyst

Friday 11/01/13

Soybeans Continue To Move South For Export; Rail Freight Costs Rise

Total soybean inspections for the week ended October 24 reached a record high on continued increases in shipments to Asia. Thanks to the strong soybean inspections, total grain inspections also were at a record high, 32% above the 3-year average. Inspections in the PNW were up 15% from last week and Mississippi Gulf inspections were up 6%. Corn inspections were 17% lower than last week and wheat inspections were down 21%, which was the lowest amount inspected since June 20. USDA's Grain Transportation Report showed barge movement on the Mississippi River totaled 844,498 tons, up 6.2% from last week and 63.5% higher than the same time last year. For the week ended October 28, 533 grain barges moved down river, which was up 5% from the prior week. For the same time period, there were 813 barges unloaded at New Orleans, which was 4.2% higher than the previous week. During the week ended October 24, 44 grain vessels were loaded at the Gulf, up 13% from the same time last year and during the next 10 days, 63 vessels are expected to load at the Gulf. With strong demand for soybeans continuing and expectations for Brazil HRW wheat purchases to increase after removing their 10% import tariff until November 30, barge freight in some corridors and especially rail freight costs have increased.

(Courtesy USDA)

Rail logistics have been a nightmare for the past few weeks thanks to an increase in export demand and also due to record corn, soybean and spring wheat harvests. Some grain elevators have been piling grain or turning grain away as rail cars are hard to come by and the secondary freight market, especially for shuttles, has moved sharply higher. USDA reported that storage capacity has been strained due to record yields and, with harvest not yet finished, many Midwestern states will need temporary and emergency grain storage to make room for the large crop size. With a large crop already harvested and more to come, the logistics snarl will continue and freight costs will continue to rise. Poor logistics and tight storage issues are also plaguing Canada after they reported larger-than-expected yields in both their canola and spring wheat harvest. According to some buyers, Canadian wheat has slowed considerably for sale in the U.S. and added to the logistic problems in the U.S. It also has caused spot spring wheat prices for loaded cars on track to remain firm. Sources in Canada have also remarked that there are wheat piles in areas where storage has been filled, especially with the extra canola harvested this fall.

For the week ended October 24, the secondary freight market for non-shuttle cars was trading at an average of $416.50 per car over tariff, according to the data provided by USDA. Shuttle freight, however, was at a huge premium and traded at an average of $1,100.00 per car over tariff in the secondary freight market with some elevators reporting that shuttle freight to the PNW rose as high as $2,500 per car last week. Just as a reminder, the BNSF and CPRS "sell" cars in weekly auctions for a price above current tariff rates that offer guarantee placements (a fee is paid by the railroad if cars are late) with cars awarded to the highest bidders. The holder of those cars is able to keep them or sell them, which created what is now known as the secondary freight market. USDA stated in the weekly GTR that, "Not since the fall harvest of 2010 when the Russian grain export ban unexpectedly increased demand for domestic rail capacity have bids in the secondary rail market commanded such high premiums." Recently, the bid/offer market for November cars is showing non-shuttle trains trading at an average of $416.00 per car with the high at $733.00 and shuttle trains at $1,100.00 per car with a high of $1,675.00. Even with higher freight costs, soybean and even corn rail basis bids to the PNW rose 5 to 10 cents in the past week.

(CZ)

Posted at 11:29AM CDT 11/01/13 by Mary Kennedy
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