Export grain shippers are evaluating their options given limited ship and rail capacity

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

Due to the low water level in the river, which is one of the main routes for exporting soybeans and grains, many farmers and agricultural transporters are wondering, “What is my plan B? What’s my plan C? Mike Steenhoek, executive director of the Soybean Transportation Coalition, to FreightWaves. “And that answer will vary depending on the region of the country and the nature of that market.”

Low water has limited the ability to barge grain exports, pushing those 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 prices 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 carriers have several options. According to Steenhoek, two of them store the soybeans or grain longer than usual or transport some of it to local livestock markets.

Freight rail is also an option, especially if agricultural products need to be exported, Steenhoek said.

Comparison of grain loads in the United States to data from the Association of American Railroads. Blue represents grain shipments in 2022. (Source: FreightWaves SONAR) Click here to learn more about FreightWaves SONAR click here.

In fact, the Association of American Railroads recently noted that grain volumes rose in October as grain growers look for alternatives in the Pacific Northwest and Gulf Coast. Mexico is also one of the top export markets for the United States, according to Steenhoek.

But relying on the railroad 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 current challenges.

“What we’re hearing is that the grain carriers still don’t have peace,” Fisher said. “They’re still experiencing rail challenges, but they’re not as severe as they were in early 2022.”

Average grain train speeds for all US Class I operations increased in September and October compared to earlier this year. (Source: FreightWaves SONAR)

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

“A strike comes at an awkward time because in certain sectors such as agriculture, in many cases the decisions made today are related to the shipment of soybeans and grain in the next month or two months,” 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 sectors you need to have more predictability. They operate with a long-term supply and demand forecast. So you have to make sure you have a predictable supply chain.”

Recent rains in the Midwest have contributed to rising water levels in recent weeks, although the country is absorbing the rainfall and there is not enough runoff to fill streams and rivers where water levels are needed. As winter approaches, any moisture in the soil freezes so it doesn’t end up in water bodies.

If the snow melts fast enough and the ground freezes, that runoff could seep into streams and rivers. However, if persistently cold temperatures are measured in a region, snow accumulates and it is only in spring that the effects of snow on waterways become visible.

“Water shortage is to blame and water abundance will be the elixir,” Steenhoek said. “…It’s going to be quite a long and sustained amount of rain and precipitation [para elevar los niveles de agua y que sean lo suficientemente adecuados para la navegación]“.

Crop yields in the United States 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 in crop year 2022-23 to be lower than in previous years. The US farming season runs from September 1st to August 31st.

While exports are expected to fall this year because harvest volumes were so much higher last year, low volumes from inland waterways haven’t helped shippers, Fisher says.

“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 the market demands it, so they are willing to pay a little more freight to get it there. [pero] it still doesn’t make up for what’s lost in the flow.”

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

“It will have negative repercussions [en el volumen] in agricultural services [en] North America,” Juan Luciano, CEO of grain producer ADM (NYSE: ADM), said during the company’s third-quarter 2022 conference call on Oct. 25. ADM produces grains in both North and South America.

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

ADM’s South American operations may also be able to export more beans, which should help offset any decline in North America. But Luciano said North American products could see a “blowout” in their margins as scarcity makes the value of products and destinations more natural.

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

“[Los clientes de Kansas City Southern] You’ll continue to have the same great options as always, including direct access to the Gulf of Mexico at multiple locations,” KCS said in a statement to FreightWaves. “In the past, transport by barge was the most cost-effective option. This year, however, shippers needed alternatives due to dry conditions. As a result, KCS has switched some companies to rail.

“Although the amounts converted are minimal, we continue to have discussions with customers. In all cases, KCS is looking for opportunities and solutions that will benefit new and existing customers, which in some cases means non-traditional KCS destinations.”

In its third-quarter 2022 results announcement, Canadian CN Railway (NYSE: CNI) said it expects to handle some grain volumes that would otherwise have been transported by barge on the inland waterway system.

“It’s a great opportunity and we’re doing it parallel to the river [Mississippi]said CN’s director of marketing, Doug MacDonald.

CN is working with customers, although MacDonald says the rail also needs to consider terminal capacity. The railroad serves both the ports of western Canada and those of New Orleans on a north-south line that originated in Canada and traverses the Midwestern United States.

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

“Because of our franchise, we’re able to serve our clients,” UP chairman and CEO Lance Fritz said Tuesday at the Stephens Annual Investment Conference in Nashville, Tennessee. “They came to us because we have a great supply from the Great Lakes, from the growing regions to the Gulf. [Pero] We have to be careful because with our limited crew base there is limited capacity. And if we get straight to the point, someone else – with whom we got engaged – has a hard time. So there are a lot of moving pieces.”

Norfolk Southern (NYSE: NSC) Chairman and CEO Alan Shaw confirmed at the same investor conference that NS has been handling more grain and has enabled the company to participate in grain export opportunities that were previously unavailable.

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