KANSAS CITY — As the harvest moved north in the hard and soft winter wheat regions, truck and rail car supplies were ample, rail freight rates were about even with a year ago and fuel surcharges, while well below year-ago levels, were on the rise.
Significantly lower wheat production in the soft red winter region of the Southeast and Central states and in southern portions of the hard red winter belt, notably Texas and Oklahoma, will reduce rail car needs from the past couple of years.
The U.S. Department of Agriculture on June 10 forecast 2009 winter wheat production at 1,492 million bus, down 10 million bus from its initial forecast in May and down 376 million bus, or 20%, from 1,868 million bus a year ago. Soft red winter wheat production was forecast at 415 million bus, down 198 million bus, or 32%, from a year ago. Hard red winter wheat production was forecast at 868 million bus, down 168 million bus, or 16%, from 1,035 million bus in 2008. Winter wheat outturn in Texas was forecast at 65 million bus, down 34 million bus, or 35%, from 99 million bus in 2008, and in Oklahoma at 73.5 million bus, down 93 million bus, or 56%, from 166.5 million bus last year (see related story on Page 25).
Trucks for moving wheat off the farm were plentiful and rates were "way down" from a year ago, one grain merchandiser said, adding, "Truckers are looking for work."
Grain industry sources indicated there were plenty of rail cars and power available, with a merchandiser for a major grain company noting "lines of locomotives" waiting at one train yard. He expressed some concern that staffing may be tight because some engineers had been furloughed due to slow train traffic overall. But a spokesperson for a major railroad serving parts of the winter wheat area said personnel and cars would be available for harvest, with cars pre-positioned based on customer demand.
Another wrinkle to grain movement this year was significantly reduced export demand for wheat. For the marketing year to date through May 21, total wheat exports were down 20% and hard red winter shipments were down 17% from the same period a year ago, according to the U.S.D.A.
"Railroads have a rate structure that favors unit or shuttle trains from terminals to the gulf," the grain merchandiser said. The favorable (lower) rail rates in effect "pushes" wheat to selected terminals served by full trains destined for gulf export markets, he said. As a result, it is more difficult, and expensive, to get wheat from other country points to domestic locations, such as flour milling centers, he said. Domestic wheat users often have to buy single or multiple carloads (but not full trains) of wheat from several country points and ship them at higher rates, even if they could use a full train.
It will be the first time "in four or five years" that domestic users have had to deal with such a situation, the merchandiser said.
He expects some railroads will adjust freight rates this season because of the lack of export sales, although rates so far are about steady with year-ago levels.
In addition to reduced rail demand for export wheat, a favorable carry (deferred values above nearby values) in hard red winter and especially in soft red winter wheat, where production also is down most significantly from 2008, will encourage storage and discourage immediate shipment, "assuming credit is available" to store the wheat, the merchandiser said.
Producers typically sell 25% to 30% of their wheat at harvest, which increases demand for trucks and railcars.