08/12/2014: Harsh winter could reverse post-harvest grain freight slump

US grain transportation costs have slumped to multi-year lows as last winter's weather-related shipping problems have so far failed to materialise, but even a modest cold snap could still overwhelm the nation's train, barge and truck network and send costs soaring again, Reuters reports.

Food company Kraft Foods Group Inc warned recently that industry wide logistic problems would drag on earnings, and grain processor Archer Daniels Midland Co said this week that rail service troubles could flare up in the first quarter of 2015.

"We still have room to have issues here as we get into the winter and I don't know that we have a large amount of confidence that the rail situation's going to get better," Craig Willis, vice president of ADM's ethanol business told investors at a presentation.

Freight costs surged to historic highs last winter as shippers struggled to secure the railcars, boosting demand for barges and trucks.

Rail costs now are either at or below last year's levels after hitting all-time highs in early October as demand surged for moving record crops. Shuttle train costs are 49 percent lower and unit train costs are 36.5 percent lower.

Mississippi River barge prices have fallen 48 percent from an October high to the lowest early-December level since 2012 and truck costs are at a three-year low.

The low freight rates have boosted grain buyer bids to farmers, but selling has remained lower than shippers anticipated so many have leased freight they do not need. Farmers sales may accelerate with the new tax year in January.

"Some people were a little long, probably double-bought, from when things weren't so wonderful," an Atlanta rail broker said.

Shippers might hold on to their extra purchases in case service deteriorates from current levels, which industry figures show are largely worse than last year. According to the latest Association of American Railroads data, average grain unit train speeds on Class 1 railroads were identical to slower than a year ago.

For barges, slow selling of corn and soybeans by farmers has limited demand for freight, while the supply of empty vessels has soared. Brokers said rates could remain under pressure as long as farmer sales to elevators stay light.

"There's 900 to 1000 Gulf unloads that have been generated on a weekly basis for the last month. We've just got a surplus," a barge broker said. "But if we get a cold snap... that changes everything." 

Read more HERE.

 

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