Grain shipping prospects favorable for fall harvest

by Ron Sterk
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Grain shipping port
While rail and barge rates were rising along with demand as the harvest advances, those rates were below year-ago levels.

Adequate rail car availability, lower fuel prices and reduced export prospects paint a favorable picture for shipping grain during the fall harvest. While rail and barge rates were rising along with demand as the harvest advances, those rates were below year-ago levels.

“Rail service has been good,” said Joe Christopher with Crossroads Commodities in Sidney, Neb. “The railroads are performing well.” He noted a downturn in rail shipments of crude oil from the Bakkan shale oil field in the Upper Midwest and of coal nationwide as factors freeing up rail resources for the grain industry.

Total rail traffic for the year to date through Sept. 26 at 20,725,660 units was down 1.2% from the same period in 2014, according to the American Association of Railroads (A.A.R.). Intermodal continued to grow with 10,135,249 units, up 2.5% and equal to 49% of the total, with all other carloads at 10,590,411, down 4.4% and equal to 51% of the year-to-date total. Coal remained by far the largest bulk product moved with 3,857,046 carloads but was down 9% from a year earlier. Petroleum and petroleum products ranked eighth with 542,535 carloads through Sept. 26, down 6% from the same period a year ago. At the end of September 2014 petroleum and products carloads were up 12.5% from the prior year.

U.S. railroads loaded 22,232 carloads of grain in the week ended Sept. 26, up 30% from the same week last year, the A.A.R. said. Grain carloads for the year through Sept. 26 totaled 786,563, up 5% from the same period a year earlier. Last year at this time cumulative grain carloads were up about 18% from 2013. Grain carloads ranked fifth after coal, nonmetallic minerals, chemicals and metallic ores/metals.

Reductions in coal shipments largely are the result of stricter emissions regulations that have resulted in the closing of some coal-fired power plants or in the switching from coal to low-priced natural gas at plants that had the capability to switch. Reduced rail shipments of petroleum and petroleum products mostly are the result of sharply lower crude oil prices to near break-even levels for shale oil. Crude oil must be moved by rail from the Bakken field because no pipeline serves the region. In addition, products used in the fracking process to extract the oil also consumed rail resources.

The dramatic drop in crude oil prices from more than $100 a barrel in July 2014 to less than $40 in late August 2015 and around $45 in September significantly reduced fuel costs for shippers. U.S. average on-highway diesel fuel prices were at six-year lows at the end of September. At $2.48 a gallon, the average diesel price was down $1.28 a gallon, or 34%, from a year ago and the lowest since $2.35 a gallon in June 2009, according to the Energy Information Administration. That translates to savings of about $380 every time a tractor-trailer’s twin 150-gallon fuel tanks are filled. As a result, fuel surcharges for trucks and the rail industry are down dramatically from a year ago.

While fuel surcharges for trucks vary widely, the railroads use set formulas based on the average highway diesel price and pass the extra cost on to shippers. The A.A.R. index of average U.S. railroad fuel prices in August fell to a multi-year low of 320.8% (July 15, 1990 = 100) of the base, down 45% from August 2014. The index includes federal excise taxes, transportation and handling expenses and represents the average monthly price of fuel paid by railroads, the A.A.R. said.

The sharp decline in diesel prices also has contributed to a shift in shipping some grain by truck instead of by rail for distances from 400 to 700 miles, Mr. Christopher said, although railroads still were favored for longer distances.

“We’re trucking wheat to places we never trucked wheat to before,” he said. There were times when rates to ship wheat from Nebraska to the intermountain region (such as Salt Lake City, Utah) were around 90c a bu by truck while the rail rate was near $1.28 a bu, he noted, and there has been no trouble getting trucks.

A factor favoring trucks was an increase in rail freight rates of about $150 to $200 a car earlier in the summer, Mr. Christopher said. But overall, rail freight rates are down sharply from a year ago.

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