Kub's Den

Well, it looks like there's going to be another large crop to deal with. Over the next 10 weeks or so, 14.2 billion bushels of corn and 4.4 billion bushels of soybeans are expected to be harvested out of U.S. crop fields, and much of that will be brought into local elevators, then poured onto a series of trucks and trains and barges. That's on top of the 1.7 billion-bushel crop of wheat that was harvested in 2017 and in addition to the multitude of other crops (milo, rice, oats, sunflowers) which will also compete for space and freight availability as shipping season continues through the winter.

In the not-so-distant past, when freight availability got tight at harvest, freight costs would skyrocket, and correspondingly, the basis bids passed back to farmers got ugly. It is wise, therefore, to keep an eye on what's happening at the nation's truck stops and along its railroad tracks and waterways and ports. The good news in September 2017 seems to be that everything looks okay, at least compared to historic ranges of how expensive grain shipping has gotten.

Every wheat berry, every soybean, and every kernel of corn must first get loaded into a truck before it goes anywhere beyond the field of its origin, so let's start with a look at present-day trucking costs. USDA's Agricultural Marketing Service doesn't have a specific index that tracks overall truck freight costs from an origin to a destination, which would include labor, maintenance, and insurance. Instead, by simply tracking retail on-highway diesel prices, we can get a sense of how a large portion of trucking costs changes from one week to the next. Currently at a U.S. average of $2.76 per gallon of diesel, this metric is running about 5% cheaper than it was a year ago. It's not as nice as it was in late February of 2016, when the average came to only $1.98 per gallon, nor is it anywhere near the May 2008 high of $4.97 per gallon.

In mid-August, there tends to be a surge in railroad grain car loadings as elevators clear out their bins, and that wasn't really observed this year. That may go some way toward explaining the still-quite-reasonable rail freight prices. For unit train (non-shuttle) freight, the secondary market in early September was offering grain cars at $31 under tariff (per car). That's a market that, over the past 10 years, has been known to range anywhere from $3,000 over tariff in the bad old days of the 2014 harvest, to $175 under tariff during 2008's Great Recession, which puts the current price level at the 24th percentile of all price observations over the past decade. As recently as last month, these non-shuttle grain cars were priced as low as $150 under tariff, so the present price level does suggest some increased competitiveness as we approach harvest.

To be sure, on the secondary grain shuttle market, rail freight already looks very competitive indeed. "Shuttles" are the trains with 110 cars all moving together from one origin to one destination -- the way that large elevators really get their grain bins cleaned out quickly. And they have a lot of grain to move, with more coming in the fast-approaching future, so they are paying dearly for access to those shuttles. This market was pegged at $282 (per car) above tariff at the end of August, showing a 23% upward jump week-over-week. That price is at the 77th percentile of all prices observed over the past ten years, yet still a bargain compared with last year's $800 per car paid on the secondary market at this time of year (to say nothing of the record-high $4,625 per car paid in October 2014).

Things quiet down again when looking at the freight prices paid for grain that travels over water. Southbound grain loaded on the Lower Illinois River could expect to pay 338% of tariff in early September, or $15.68 per ton. Compared to the whole range of prices seen in the past decade, that's sitting at the 30th percentile. It's of course better than the October 2014 high-water mark (pun intended) at 1067% of tariff, but still represents steadily increasing freight costs since this spring.

Even ocean freight prices are helpful to basis values at this time. The cost to ship grain at the end of August from the U.S. Gulf to Japan was pegged by USDA's AMS (Ag Marketing Service) at $38.75 per metric ton, sitting at the 28th percentile of the range of prices seen over the past decade. Eerily similar, the cost to ship grain from the Pacific Northwest (PNW) to Japan was also at its 28th percentile: $20 per metric ton. These prices have ranged anywhere from $141 per metric ton for Gulf-loaded grain in May 2008, to $12.50 per metric ton for PNW-loaded grain in February 2016.

Amazingly, there may not even be too much of a blip in these price data streams after the damage caused by Hurricane Harvey. All the ports in the Gulf region are already back open for business, and "service has been restored on nearly all affected rail lines," according to the BNSF Railway. Certain segments of track or bridges will still take time to repair fully, but most service is taking place without embargoes or detours or reroutes. Even retail gas prices are starting to show signs of easing in Texas and, hopefully, will continue to ease nationwide as refineries come back online.

Grain prices may not be very high right now, but neither are freight costs. So, that's perhaps one less challenge to worry about while we anticipate the next few months of moving billions of bushels of grain.

Elaine Kub is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at elaine@masteringthegrainmarkets.com or on Twitter @elainekub.

(CZ\SK)

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