Export grain shippers are considering options amid limited barge and rail capacity

Grain shippers have struggled to consider all of their export options in light of low water levels on the Mississippi and its tributaries.

“Due to the low water conditions on the river, which is a major channel for soybean and grain exports, there are many farmers and many agricultural shippers who are asking, ‘What’s my plan B? What’s my plan C?’” Mike Steenhoek, executive director of the Soy Transportation Coalition, told FreightWaves. “And that answer will vary by region of the country and what that market is like.”

The low water levels have reduced the capacity for barge transport of grain exports, bringing these rates to their highest levels in years. According to the US Department of Agriculture, inland waterway rates for agricultural transportation along key points of the US waterway system fell during the week of November 8 after price spikes in October.

“Barge rates are at an all time high right now,” said Max Fisher, chief economist for the National Grain and Feed Association.

When water levels are low, grain and soybean shippers have several options. Two of those options, Steenhoek says, are storing their soybeans or grain longer than usual or shipping some of it to local livestock markets.

Freight rail is also an option, particularly if the agricultural produce needs to be exported, Steenhoek said.

A comparison of US grain truck loads using data from the Association of American Railroads. Blue represents grain truckloads in 2022. (Source: FreightWaves SONAR) To learn more about FreightWave’s SONAR, click here.

In fact, the Association of American Railroads recently noted that grain volumes rose in October as grain producers look for alternatives to the Pacific Northwest and Gulf Coast. According to Steenhoek, Mexico is also one of the US’s top export markets.

But relying on rail comes with its own problems. Although rail transport has improved over the course of this year, “it’s still not the effective lifeline that we really need right now,” Steenhoek said.

Fisher agreed with this assessment of the ongoing challenges.

“What we’re hearing is that the grain trucks aren’t clear yet,” Fisher said. “They’re still experiencing rail challenges, but they’re not as bad as they were at the start of 2022.”

The average train speed for grain trains on all US Class I operations increased in September and October compared to earlier this year. (Source: FreightWaves SONAR)

In addition, a possible rail strike could prove disastrous for grain transporters due to the inability to ratify labor contracts between the railroads and two to four unions.

“[A strike] It really comes at a bad time because in certain industries like agriculture, in many cases the decisions you make today relate to where you will be shipping soybeans and grain to next month, which is two months from now,” Steenhoek said. “It’s not like a cupcake shop where you’re like, ‘How many chocolate cupcakes should I make tomorrow? How many do I think I will sell?’ For certain industries you need to have more predictability. They work more with a long-term demand and supply forecast. So you need to make sure you have a predictable supply chain.”

Recent rains in the Midwest have helped raise water levels in recent weeks, although the country is sucking up rainfall and there isn’t enough runoff to fill streams and rivers where water levels are needed. As winter approaches, any type of moisture in the ground is frozen so it doesn’t get into the waterways.

If the snow melts fast enough and the ground freezes, this runoff water could end up in the streams and rivers. But when a region sees persistently cold temperatures, the snow just piles up and it won’t be until spring to see what impact snow might have on inland waterways.

“Water shortage is the culprit and water abundance will be the elixir,” Steenhoek said. “…It will require a fairly long and sustained amount of rain and precipitation [to raise water levels to be suitable enough for navigation].”

Crop yields for the US are expected to be below historical levels due to hot and dry conditions during the growing season. In a monthly report released Nov. 9, the Department of Agriculture expects US exports of corn, soybeans and wheat to be lower in crop year 2022-23 compared to previous years. The US crop year runs from September 1st to August 31st.

But although exports are expected to fall this year because last year’s harvest volumes were much higher, Fisher says low levels on inland waterways have not helped shippers.

“More grain is also likely to be shipped to the Pacific Northwest by rail than would otherwise be the case because grain companies definitely need to get grain to foreign markets,” Fisher said. “In some cases, sometimes the market just demands it, so they’re willing to pay a little more freight to get it there [but] still not compensating for what is lost on the river.”

Both large and small companies are affected by low water levels in the US waterway system, which includes not only the Mississippi, but also the Missouri, Illinois and Ohio rivers.

“It will have a negative [volume] Effects in agriculture [in] North America,” said Juan Luciano, CEO of grain producer ADM (NYSE: ADM), during the company’s third-quarter 2022 earnings call on Oct. 25. ADM produces grains in both North and South America.

Some North American soybean export volumes are likely to be lost this season, while the window for corn exports is likely to be extended into the first quarter, Luciano said.

ADM’s South American operations may also be able to export more grain, which should help offset any declines in North America. But Luciano said North American products could see a “pop” in their margins as scarcity naturally makes the products and destination more valuable.

For their part, North American railroads say they are working with customers to ship more grain.

“[Kansas City Southern customers] continue to have the same great opportunities they’ve always had, including direct access to the Gulf of Mexico at multiple locations,” KCS said in a statement to FreightWaves. “Inland shipping has historically been the most cost-effective option. This year, however, shippers needed alternatives due to drought conditions. As a result, KCS has switched some stores to rail.

“While minimal amounts have been converted, we continue to have discussions with customers. In all cases, KCS seeks win-win opportunities and solutions for new and existing customers, which in some cases means non-traditional KCS destinations.”

In its third-quarter 2022 earnings call, Canadian railroad company CN (NYSE: CNI) said it expects to handle some grain volumes that would otherwise have used barge transport on the inland waterway system.

“It’s a great opportunity and we’re doing it in parallel [Mississippi] River,” said Doug MacDonald, CN’s chief marketing officer.

CN is working with customers, although MacDonald said the railroad also needs to be mindful of terminal capacity. The railroad serves both western Canadian ports and New Orleans on a north-south line that originates in Canada and runs through the American Midwest.

Union Pacific (NYSE:UNP) is also shipping additional grain, but like CN, the railroad needs to be careful not to oversell capacity, according to comments this week.

“Because of our franchise, we are able to serve our clients,” said Lance Fritz, UP’s president and CEO, Tuesday at the Stephens Annual Investment Conference in Nashville, Tennessee. “They came to us because we have a wonderful recording of the Great Lakes, from the growing regions down to the Gulf. [But] We have to be careful because with our limited crew base, capacity is limited. And when we switch to grains across the board, someone else—to whom we’re committed—is having a bad time. So there are a lot of moving parts.”

Norfolk Southern (NYSE: NSC) President and CEO Alan Shaw confirmed at the same investor conference that NS has been handling additional grain and that the company has been able to participate in grain export opportunities not previously available.

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