Most movement and price indicators — across all modes — have been mixed so far in 2020, compared to the same period in 2019 and historical averages. Prices are relatively low for truck, barge, and ocean movements, but have increased for rail.
Grain movements, while generally low this year, have picked up in recent weeks. As of September 5, grain carloads were slightly down from a year ago but have trended up lately. The year-to-date (YTD) barge tonnage is higher than the same time in 2019, but lower than the 3-year average.
According to the September World Agricultural Supply and Demand Estimates (WASDE) report released last week, total exports of the three major grains (corn, wheat and soybeans) are expected to reach 5.4 billion bushels in 2020/21. This amounts to a 23-percent increase from 2019/20, which in turn, could boost the demand for export grain movements.
Increased Rail Carloads of Grain in Recent Weeks
According to data from the Association of American Railroads, as of September 5, total rail traffic is down 11 percent so far this year compared to last year. YTD carloads of grain originated by U.S. Class I railroads, while down 4 percent, have trended upward since early July. This week, 23,003 carloads of grain were originated, which is the highest seen so far this year. Increased freight movements have been associated with well above average rates in the secondary auction market and generally slower grain train speeds.
For more on recent trends facing railroads and grain, see last week’s article.
Despite Navigation Issues, Barge Movements Show Similar Seasonable Pattern
In recent months, the inland waterways have faced various navigation challenges. In early July, the U.S. Army Corps of Engineers Rock Island District started repairs to the locks and dams along the Illinois Waterway.
Five locks and dams (between Dresden Island Lock and Dam and LaGrange Lock and Dam) are scheduled to remain closed until the end of October. Portions of the Mid-Mississippi River (and below) experienced some water and dredging issues in the early weeks of this quarter. In late August, the lower Mississippi and Gulf areas experienced severe weather conditions, such as Hurricane Laura and heavy rain, that caused temporary halts in barge operation. Despite these shocks to the navigation system, barge movements of grain for most of the third quarter followed a similar pattern as previous years.
Starting from the second week of July, barge movements of grains slowed down and stayed relatively stable as the previous years. Volatility in barge movements has been milder this year—weekly fluctuations in tonnages average 130 thousand tons, compared to 250 thousand tons in 2017 and 2018. For the week ending September 12, YTD barge grain shipments are 33 percent higher than the same time in 2019, but 5 percent lower than the average of the previous four years.
While the closure of northern Illinois River for repairs from the end of June affected shippers’ ability to use that portion of the river, third quarter movements do not show noticeable differences from what is typically seen during a slow traffic period for the Illinois River. This is a sign that shippers may have employed other options, such as continued storage, trucking to the Mississippi River below the closed locks, or shipping by rail.
Barge rates in this quarter are noticeably down from the previous two years and about 20 percent below the 4-year average.1 However, rates are still higher than 2017 during most of the quarter. In 2017, a high supply of barges and generally fluid logistics allowed rates to remain low, even with some highwater challenges. A combination of adequate supply of barges and towboats, low bids due to the unstable weather condition, and market uncertainty, may explain the relatively low barge rates in this quarter.
Dry-Bulk Freight Rates Remained Relatively Low
Ocean freight rates for shipping bulk grain have decreased the last two weeks. The rates are still relatively low, compared to the beginning of the year and the same period in 2019 (year to year), but slightly above the 4-year average. During the week ending September 10, 2020, the cost of shipping bulk grain from the U.S. Gulf to Japan was $44.00 per metric ton (mt), down 4 percent from January 2, 2020, down 15 percent from year to year, and up 2 percent from the 4-year average.
As of September 10, 2020, the cost of shipping from the Pacific Northwest (PNW) was $24.00 per mt, down 4 percent from January 2, 2020, down 19 percent year to year, and up 1 percent from the 4-year average. Ocean freight rates have fluctuated since the beginning of the year, as cargo demand attempts to catch up with vessel supply.
According to September 10 Transportation and Export Report by O’Neil Commodity Consulting, “China demand for grain has been the only bright spot for vessel owners but has not been enough to keep rates up.” The average number of oceangoing grain vessels expected to load within the next 10 days in the U.S. Gulf has increased since the past 3 weeks. Over the last three weeks (August 27 to September 10), an average of 62 oceangoing grain vessels were expected to load within the next 10 days, compared to 39 vessels during the prior 10 weeks.
Average Diesel Fuel Prices Increase Slightly Throughout Summer Months
Since late May, average U.S. on-highway diesel fuel prices have increased by just under 4 cents per gallon to $2.435. Prices remain more than 50 cents below the same time last year and 21 cents below the 2020 peak, which occurred in the first week of January. According to the Department of Energy’s Energy Information Administration (EIA), U.S. crude oil stocks reached peak levels in July, keeping downward pressure on diesel fuel prices. EIA expects the shift from building crude oil inventory to drawing on inventory to continue through the end of the year. High inventory levels and surplus crude oil production capacity will limit upward pressure on oil prices.
Outlook for 2020/21
According to the September WASDE, total exports of the three major grains are expected to reach 5.4 billion bushels in 2020/21, up 23 percent from 2019/20 (see table). Foreign demand for corn is expected to recover as a result of the large U.S. crop and competitive prices. Demand for U.S. soybeans is expected to recover as well, mainly due to increased exports to China. Projected soybean exports now account for 48 percent of total use.
In 2020/21, U.S. corn exports are projected to increase 32 percent from 2019/20 due to reduced production in the European Union and Ukraine. Demand for U.S. wheat has increased also due in part to lower production in Europe and increased demand from China. Soybean exports for 2020/21 are expected to increase by 26 percent from 2019/20, and wheat exports are expected to increase by 1 percent. (see table). YTD export sales commitments of corn for 2020/21 are significantly above the same time last year because of increased exports to China and Japan. YTD soybean export commitments for 2020/21 are also significantly up from last year due to increased sales to China. Total wheat commitments for 2020/21 are up 8 percent from 2019/20.
Information provided by USDA Grain Transportation Report. For more information, email [email protected].
