Transportation woes will continue
It may be old news by now, but it is news that will be recycled for some time to come. There are transportation bottlenecks in the commodity markets, and a bumper crop isn’t helping.
Railways are plugged by growing demand from increased extraction in U.S. oil fields, and crops rolled in in record amounts. Even with widespread rains giving pause to harvest, corn and soybeans challenged storage facilities.
To handle the harvest, MFA used existing temporary storage sites as well as building additional temporary storage to add about 10 million bushels of capacity.
Meanwhile timely rain has meant more than good crops. In September, the Army Corps of Engineers announced that scheduled releases from upstream reservoirs on the Missouri River would extend navigation on the river.
MFA kept grain moving by loading barges in Jefferson City, Glasgow and Lexington.
At AGRIServices of Brunswick, Lucy Fletcher, Business Development, said the Missouri River continues to show its importance as a mode of transportation.
“You need rail, truck and river,” she said. “When we see the rail problems we have this year, barges really help. The Missouri system can get grain to New Orleans by going through just one lock, so we have the infrastructure in place to stay efficient. Aside from helping get a bumper crop down river, the good news is we’re able to bring fertilizer back up the river, and that helps pricing for our farmers.”
Commodities rush past transportation supply
The rail situation isn’t just a matter of getting grain to terminal ports. It affects feeders, too. And the timing of a record corn crop with a record bean crop will send price signals for some time.
Dan Basse, president of AgResource Company, addressed the issue at Feeding Quality Forums in Kearney, Neb., and Amarillo, Texas. For freight rates, he said to consider $3,300 rail-car cost a crystal ball for the corn and cattle feeding industries.
“The grain farmer is absolutely going to get hammered to move his grain. All of this passes back to you,” the analyst told cattle feeders and other attendees.
Just a year ago that same rail car went for $450 or less, but as fracking and crude oil production in North Dakota have ramped up dramatically so has demand for rail transit. By 2017, the U.S. and Canada will be producing 5 million barrels of crude oil per day, and it has to move somehow.
Barge freight is also rising sharply, so Midwestern farmers relying on export markets are also at a disadvantage.
“Not only does the transportation issue lower basis in the north,” he said. At gulf shipping ports, “it raises basis, which reduces our export competitiveness.”
“Being centric to the supply of corn will help the basis of your operation,” Basse said, noting that the feeding industry could shift north, where grain is close. “It’s a struggle to find a rail car just to get [corn] delivered on a timely basis.”
Three main factors will depress the corn price for the next several years, Basse said: a mature biofuel market, lower demand from the livestock sector, and the lowest U.S. export share on record for a non-drought year.
“If the U.S. has normal weather going forward, it will have to buy back that export share through price,” he said.
This is the first time in history the world has produced record high corn, wheat and soybeans, all in the same year. With a fall corn-crop estimate of 14 billion bushels, Basse said the 2014-15 price will average around $3.60/bushel, with a long-term average of $2.70 to $3.20 through 2020—not accounting for basis.
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