November 11, 2009

 

Boom time for grain barges as full harvest from US farms leads to surge in deliveries

 

 

A flood of newly harvested corn and soy from US farm fields is inundating domestic transportation infrastructure, causing a sharp rise in grain barge freight rates, and intense downdraft in cash grain basis at terminals situated on the US rivers system.

 

The US Department of Agriculture said that a total of nearly 2.4 billion bushels of corn, soy and grain sorghum were harvested from US farm fields last week, representing many long-delayed truckloads that were immediately driven to local elevators, in fulfillment of outstanding forward-sales contracts.

 

"The cash market is under pressure this morning as deliveries to commercial terminals are on the rise," said West Bend, Iowa commodity trade adviser Karl Setzer. "Producers are moving more grain into the supply-line, mainly soy. There will be very few soy left in the Corn Belt by next week, and much less corn."

 

USDA said US growers nearly picked one-fourth of their entire soy crop, last week alone, and now have gleaned 75 percent of all acreage. Twelve percent of all cornfields were also picked during the period, pushing progress to 37-percent complete.

 

After drying to acceptable storage levels, a good deal of the grain being transferred from farmers to local elevators is being immediately transshipped to nearby river terminals, many of whom are also behind on meeting previous contract commitments of new-crop grain to export buyers at the Louisiana Gulf.

 

Outstanding foreign demand for soy has also increased the "pull" on barges downriver, nearly doubling daily transits of bean barges through Mississippi River Lock #27 near St. Louis, for example, during the past week.

 

"Exports remain red-hot. China took 73 percent of the huge 59.9 million bushels of last week's US soybean inspections, continuing to ship out earlier record sales and firming barge freight," said Farm Futures analyst Bryce Knorr.

 

A similar situation is also being seen on the ocean freight market.

 

"The Baltic Freight Index (a measure of average worldwide freighter tariffs) reached its highest level since July 30, climbing 57 percent since late September lows," said Country Hedging's Tregg Cronin. "Strong Chinese demand in raw materials is cited for the rise in shipping costs."

 

That sudden surge in demand has swamped the capabilities of towing companies to rapidly deliver all the grain barges needed - particularly with many waterways still hovering around flood-stage, following record October rains - consequently producing a massive spike in spot barge freight rates.

 

"Barge freight appeared to have made a 150 percentage point surge," on Friday alone, said Benson Quinn Commodities grain market analyst Jon Michalscheck.

 

Two major Ohio River construction projects, at the Greenup and Markland Locks, have also slowed barge movement, predicating lockage delays of six to 11 hours in length Tuesday (Nov 10).

 

The rise in freight rates continues unabated, leaving barge tariffs in some locations as much as 315-percent higher than a week ago, at fully double the level of one year ago.

 

"Harvest demand is a big part of it. Also hearing of some barges being used as temporary floating storage," said Setzer who noted that elevated shipping costs are cutting into merchandiser margins, forcing them to pare back basis bids for grain.

 

The cost of barging a bushel of corn from docks on the Mississippi, Illinois, Ohio and Arkansas Rivers has risen by 11 to 33 cents a bushel during the past week, meaning some shippers are now paying as much as 78-cents more in transportation costs on that bushel than they did last November.

 

Unwilling to shoulder the increased expense, river terminals from Cincinnati to Minneapolis have slashed basis premiums applied to cash-price corn/soy bids by 30-40 cents a bushel.

 

"Nearly all of the corn coming in has been previously booked, but we are seeing fresh sales on soy," said Setzer.