Harvest Super Bowl
November 21, 2008
By: Sara Schafer
, AgWeb.com Business and Crops Online Editor
With the 2007 harvest underway, some say it's transportation's Super Bowl. More than 13 billion bushels of corn have to move—the largest crop in history—and managers of elevators, railroads, barge lines and trucking companies are in for the biggest harvest season of their careers. It surely will provide challenges to the country's transportation infrastructure.
The Mid-South felt the crunch early in the game, with higher barge rates and reported five-hour waits to unload at the elevators. Farmers there planted 219% more corn acres to take advantage of ethanol-enhanced prices.
"It's been a phenomenal crop in terms of yield and test weight, but it came in really fast and has been hard on the system,” says Steve Nail, president of Farmers Grain Terminal, which operates 10 elevators in the area where Arkansas, Mississippi and Louisiana intersect.
Lower Mississippi River barge rates doubled to $30 a ton in early September—higher than just after Hurricane Katrina—due to a rapid harvest and reduced barge drafts created by low river levels.
"We knew we would face higher barge rates, but our biggest problem has been finding trucks,” says Nail. With a bigger harvest, truckers know they are in demand and have increased freight rates.
Midwest farmers should watch the Southern bottlenecks because they predict what will happen up river, says Ken Eriksen, senior vice president of transportation services for Informa Economics, based in Memphis, Tenn.
"The biggest challenge this year is we have a huge crop everywhere, not just in the Corn Belt,” says Eriksen. "It's a good problem to have, but every transportation sector is going to feel pressure, including rail, trucks and especially the river system.”
Barge turnaround ticking. High fuel prices, repairs to lock facilities, strong export demand and a bumper corn harvest in the Delta have constricted barge supplies along the major shipping corridors. Freight rates rose to unheard-of levels on some sections of the interior U.S. river system in late August.
Currently, the biggest worry about shipping is whether barges can recover from the huge southern harvest in time to reposition on the upper Mississippi. Barges need to be southbound before Dec. 15, when the river shuts down at Keokuk, Iowa, due to winter lock repair and ice.
"Southern elevators are going to have to stop sending grain to the river in order to get barges turned around and up river in 30 days,” says Eriksen. Loadings on the lower Mississippi may need to halt and resume later in the quarter or after the first of the year to meet the deadline. Corn not loaded will go to temporary storage or it will be stored on the ground.
The barge supply squeeze is heightened by exceptionally strong freight demand from grain exporters. Export inspections of U.S. wheat currently exceed year-ago levels by 42%, with soybean shipments up 18%.
"We've had a strong first-half export sales program for corn, and that is creating some rush to the market,” says Eriksen. "The biggest export demand is coming from countries that are Gulf oriented, so the Mississippi River will be an important transportation artery to watch.”
Barge jams are likely due to locks not being long enough, says Eriksen. A 1,200' tow needs to be cut in half and pushed through 600' at a time. "But if there is a surge of tows, there will be a wait regardless.”
Traffic volume increases and maintenance create long waits for barges to pass through locks. Without expansion of locks, delays to grain-filled barges cost about 1.5¢/bu., according to a new report by North Dakota State University and the Army Corps of Engineers. As barge shipments increase, costs rise to about 3¢/bu. The greatest expenses result from delays on the upper and lower Ohio River.
"Barge delays translate into higher barge rates, which, in turn, influence basis along the river at interior locations and at the Gulf,” adds Eriksen. "Farmers see a lower cash price for grain, and they must decide to either hold the grain or ship it at that price.”
Changing flow. The ethanol industry may significantly reduce grain barge delays on the Mississippi River system. Most believe ethanol will likely shift considerable amounts of corn away from the barge system to rail and truck traffic.
Iowa State University economist Bob Wisner estimates the state of Iowa exported 803 million bushels in 2003, but by 2008 would be deficit 400 to 500 million bushels if existing plants are running at rated capacity.
Although refineries first were located in the poor-basis areas such as the Dakotas, parts of Minnesota and Iowa, they now are being built throughout the Corn Belt—and beyond. With ethanol production up to 12 billion gallons per year, the flow of grain by way of rail and truck shipments will drastically increase across the country. Less will follow the river north and south.
As for this harvest, most experts believe the river has adequate water for full drafts during harvest. Before Midwest rains began flowing in late August, low river levels forced barges to be loaded lighter. A barge loses 17 tons of capacity for every inch that draft is reduced.
Barge movements off the upper Mississippi River typically peak in late November and early December. Once these movements slow, grain barge loading is concentrated off the Illinois and Ohio rivers. This year, the lower Mississippi will be a key contributor to extended barge loading during December and January, as much of the grain stored in temporary storage will need to be moved.
Railroads still rigid. A wheat export boom, a larger-than-expected crop in the Northern Plains, high wheat prices and expectations of a huge corn crop have led to a sudden increase in secondary-market grain car prices going into fall harvest.
Prices for shuttle cars in secondary markets for October delivery increased from $212.50 for the week ending July 28 to $833 for the week ending Aug. 18.
In Western states like Colorado, the bumper wheat crop overwhelmed local elevators and rail service. More than 10 million bushels of wheat were stored on the ground in August, deteriorating as it lay exposed to the elements. The governor of Colorado declared a disaster emergency to temporarily allow farm-plated vehicles to haul raw agricultural products outside of their normally restricted range of travel.
"Right now, I couldn't get a train if I ordered it because they are so short on cars,” says Larry Olsen, grain manager for FCA Co-op in Jackson, Minn. "Somehow, we always move the bushels, but an early harvest makes us scramble.”
Burlington Northern Santa Fe (BNSF) Railway officials have taken a proactive approach to the 2007 harvest—a move they say will benefit elevators and farmers. BNSF wants more timely pickup and delivery of grain cars, better communication with elevator managers and a 10% reduction in shipping rates.
But if managers waited to order grain cars in August, the imminent shortage would have hit them with a higher shipping bill because demand has been building all summer.
"As far as railroads are concerned, today's challenges are more weighted toward track capacity and trained crews than that of rail car availability and power,” says Jay O'Neill, Kansas State University senior ag economist. "We simply don't have sufficient track capacity to fit all of the business that wants to travel by rail.”
Agricultural rail volume is on the rise, says the Association of American Railroads. Grain freight was up nearly 8% over 2006 in late August.
Because long-haul truck drivers are hard to find and rising fuel costs make truck-rail combinations more attractive, some trucking companies are giving a portion of their traffic to their rail competitors, says Toby Kolstad, president of Rail Theory Forecasts, a consulting firm specializing in North American rail freight traffic and railcar demand.
In the carload sector, BNSF maintains its prominence in grain transportation, established when the five western carriers merged to form the Burlington Northern in 1971. BNSF was also the first railroad to develop the Powder River Basin into the main source of coal for electric utility industry.
While traffic volume by rail is up across commodities, traffic volumes of grain and western coal are expected to keep rising for many years and BNSF is expected to play a dominant role in each market.
Trucks tighten up. Truck demand is high this year, for on-farm and off-farm delivery out of the field, says Eriksen. Another problem is finding enough employees to handle harvest and drive trucks.
"If it's a fast-paced harvest, you can expect a lot of long lines at the elevator,” says Eriksen. "But that also might push farmers to dump corn on their farm and leave it for awhile.”
As an all-truck house, it's usually feast or famine for truckers hauling to Fredericksburg Farmers Cooperative in Fredericksburg, Iowa. This year, it's a feast, says grain merchandiser Mike Winter. So far, the co-op has moved grain reasonably well and has locked in an adequate truck supply.
"We worked hard to get our facilities emptied out before going into harvest,” says Winter. "We have a lot less producer grain that is being carried over, and that helps our position going into harvest. We're probably carrying over the least amount in a number of years.”
In response to market changes, FCA Co-op in Jackson now owns its own semis in addition to hiring private rigs. The co-op added another semi trailer to its lineup this year, which totals about 14 trucks.
"We have two local soybean processors, and because of the bigger crops out East, there is no need anymore to rail our soybeans,” says Olsen. In addition, farmers in the area are hauling more to local biodiesel and ethanol plants.
"Every year we worry about where we will put the bushels and if transportation will come through,” says Olsen. "This year, it's the same worries, just on a bigger scale.
To contact Jeanne Bernick, e-mail email@example.com.
—Top Producer, October 2007
- OCTOBER 2007