Market Matters Blog
Mary Kennedy DTN Basis Analyst

Friday 02/07/14

Mother Nature Still Affecting River, Rail Logistics

As another winter storm brought cold, snow and ice through the central U.S., rail service and barges faced continued setbacks. Rail service was beginning to see a light at the end of the tunnel, but the most recent storm caused service disruptions in the Midwest and Chicago. February 4, the BNSF posted another operations update noting: "A new storm system with expected snowfall levels of 5 to 10 inches is moving across the Midwest, affecting BNSF territories in Illinois, Missouri, Indiana, Iowa, Nebraska, Kansas, Oklahoma and Colorado. The storm system began Monday, February 3 and is expected to continue through the week. This storm system is slowing switching rail and hub operations throughout the Midwest and into Chicago. The added challenge of extreme subzero temperatures across BNSF northern routes will adversely affect arrivals, departures and train sizes between Chicago and the Pacific Northwest."

(Chart courtesy of USDA)

While the BNSF 24-hour command center had worked diligently to restore service from the same weather issues the prior week, they told customers: "While progress has been made at all BNSF Chicago facilities since last week -- noted by improvements in outbound units pending loading, inbound units pending de-ramp, and overall terminal inventory levels -- normal operations and service levels have not been fully restored. The current storm system noted above is expected to delay progress toward full recovery."

The full service announcement can be found at: http://goo.gl/…

The total amount of grain cars loaded for the major U.S. carriers was 13% higher during the past four months, according to USDA's Grain Transportation report. This is a reflection of the record grain harvest in the U.S. last fall. The BNSF's share was 12% less during the past four months than the same period one year ago. While the BNSF is the prevalent grain hauler, it has moved the smallest amount of grain since 2002.

"Persistent service problems have reversed BNSF's market share to its lowest point since 2003," USDA stated. "Service problems started with track improvement work, but were exacerbated by a record and compressed harvest, weather, and tight capacity due to increased oil, intermodal, coal, and automotive traffic. This change measures two extremes, but is not expected to hold longer term as BNSF continues to implement changes to work off its traffic backlog by spring. BNSF has budgeted $5 billion for continued capacity expansion and improvement projects in 2014 to prepare for anticipated traffic growth."

While other carriers were able to pick up some of the traffic diverted by the BNSF during harvest, the high cost of freight in the secondary market is a clear sign that demand for rail service is unable to be met at this time. While the bid/offer market moved lower one week ago, shuttle loaders have reported prices rose again in the past two days, with some bid/offers at $2,500 vs. $4,000 over tariff. As for cash basis being affected by the weather and freight costs, corn, soybean and wheat basis bids for rail shuttles have fluctuated along with the secondary shuttle freight market.

Barges are still battling dangerous conditions due to severe icing, low water and Phase 2 of the rock removal at Thebes, Ill. A barge line reported Feb. 6 that the Illinois River was getting worse due to ice and was nearly 100% closed for barge traffic. In addition, the ice storm in the south last week shut down operations in Baton Rouge, La., for two days. Besides the slow arrival of barges from upriver, the ice storm closed roads and bridges and created unsafe conditions for loading vessels. Grain inspection services were unavailable for two days because of the storm, which added to the delays. Ships were unable to enter the port as vessels waiting to load caused heavy congestion in the harbor.

Barge grain movements totaled 620,286 tons for the week ended Feb. 1, according to USDA, which was 14.5% lower than the prior week. For the same week, 1,378 barges moved downriver which was 21% lower than the prior week and 682 barges unloaded in New Orleans, La., 11.5% less the prior week. The lower barge movements clearly show how much of an impact the harsh winter is having on river transportation. Basis levels for corn and soybeans have been affected as well with river terminal bids last week dropping due to the poor conditions either stalling or slowing traffic. Some terminals, especially those on the Illinois, were unable to load anything as barges were either absent or parked for safety reasons. As of Feb. 3, the rock removal at Thebes has moved to an area where the river bends and because of that, barge traffic is restricted to daytime closures of 12 hours until work is completed there.

I asked DTN Senior Ag Meteorologist Bryce Anderson if weather conditions will get better any time soon and his response was not very promising. "I hate to be piling on the situation for grain transport, but this cold temperature pattern does not show a quick turnaround to favorable conditions during the next ten days or so," he said. "We will see about a ten-degree Fahrenheit rise in the values across the Northern Plains and Midwest -- but that's not much of a rebound from the bitter-cold depths we've seen since the first of the month. Peoria, Ill., temperatures, for example, will be in the teens for lows and mid-20s for highs by next weekend instead of subzero for lows and low teens for highs like we'll see the next few days. And in the north, Bismarck will have low temperatures in the next week to 10 days in the single digits with highs in the low 20s as opposed to lows of about 10 below zero F and highs of around +5 during the next five days. There is a milder pattern for the Northern Plains and Prairies in the 8-14 day period, but the Midwest will still be cold. Northern Plains areas could have some new snow to work with as well, however. Bottom line is that recovery from the harsh winter conditions is going to be a drawn-out process."

Posted at 10:56AM CST 02/07/14 by Mary Kennedy
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