September 21, 2009

The whistle of a freight train echoed off the concrete silos of the Agrex grain elevator here, signaling the start of a 1,600-mile long journey for another shipment of Nebraska grain to Pacific Northwest ports.

 

"We ship milo [grain sorghum] and soy to the [Pacific Northwest]...Kalama, Tacoma, Seattle and Portland," said Agrex merchandiser Bruce Tinkham.

 

Historically, that same Nebraska grain would have likely travelled south, destined for export terminals about 1,000 miles away at the US Gulf of Mexico, but rail efficiencies and a massive, sustained Asian appetite for grain has meant a boom for the Pacific Northwest shippers.

 

"We are starting to see a shift take place in the US grain market," said MaxYield commodity trade adviser Karl Setzer.

 

The first export grain terminal built in the US in over two decades is under construction on the Columbia River shipping channel in southwestern Washington state. The US$200 million project - announced in June and slated for completion in 2011 - is a partnership between Bunge North America Inc., ITOCHU and STX Pan Ocean.

 

Grain exports rose 20 percent to reach a record 6.4 million tonnes at the Port of Seattle in 2008. For comparison, US Department of Agriculture said total exports of US corn, wheat and soy rose only 10 percent in 2008.

 

The record volumes were due largely to strong demand in China, Japan and other Asian nations, coupled with ample US supplies, said Mike Mandl, director of export operations for Louis Dreyfus, which operates Seattle's 4-million bushel grain elevator.

 

Grain exports from Seattle are forecast to again nearly draw even with 2008's unprecedented pace, even though the elevator was closed for repairs for five weeks this spring.

 

"We've been doing, on average, one grain ship a week," said Peter McGraw, media officer for the Seaport of Seattle. "We can get a ship [carrying 2.4 million bushels of corn] filled up in about 24 hours. That's a pretty quick turnaround."

 

Turnaround times for a shipment of Asian-bound grain from the Pacific Northwest are up to two days shorter than a similar ocean cargo from the Gulf.

 

"This is a savings of roughly US$500,000," Setzer said. "The Gulf has yet to return to full capacity since [2005's Hurricane] Katrina."

 

The volume of grain exported from Portland, Ore., rose 1 percent to 4.41 million tonnes in 2008, even though shipments of corn, soy, wheat and grain sorghum out of the Port of South Louisiana near New Orleans - historically the busiest US grain port - sank 14.7 percent, to 76.838 million tonnes.

 

Although the cost of moving a bushel of Nebraska grain by rail to the Pacific Northwest is currently 33-38 cents higher than going to the Gulf, Tinkham says, "the value of ocean-going freight is the key factor. When the freight-spread works out of the [Pacific Northwest] to the Pacific Rim destinations ... you'll see a big surge in interior grain movement to the [Pacific Northwest]."

 

The USDA currently places the cost of shipping grain from the US Gulf to Japan at US$57.50 per tonne, nearly double the US$30.00 rate charged on Pacific Northwest-Japan routes.

 

US railroads increased efficiency has helped their operating capacity, lowering interior freight rates and increasing turn times.

 

"The big picture is that the cost to move grain to the [Pacific Northwest] versus the Gulf has declined markedly over the last 10 years," said Kevin Kaufman, group vice president of agricultural products for BNSF, a 37,000 mile line which serves more of the nation's major grain-producing regions than any other railroad.

 

Kaufman estimates that BNSF grain customers in the northern Plains, upper Midwest and western/central Corn Belt have invested US$1 billion in unit-train facilities - which shuttle dedicated trains directly to ports and end-users - over the past five to 10 years.

 

"We've seen shuttle facilities built in the Dakotas, Minnesota, Nebraska, some in Iowa...and believe it or not...Illinois," he said. "We have five shuttle train facilities in the state of Illinois that weren't there three years ago...some are reasonably close to the river. I traded grain for a long time and never thought I'd see Illinois ship grain west."