Minnesota's United Farmers Cooperative enlisted the expertise of Dr. Bill Wilson, a professor at North Dakota State University who consults on grain marketing, transportation and logistics, to create a “draw analysis” of grain flow patterns before it proceeded with the creation of United Grain Systems, a joint venture with Archer Daniels Midland (ADM).
The objective of the study was to prove the existing demand for and sustainability of a state-of-the-art, high-speed shuttle loading facility in south-central Minnesota. Ultimately, the co-op was able to make its case as the study reveiled some unexpected trends.
To illustrate these finding, the following information excerpts have been pulled from Dr. Wilson's report:
Major Factors Impacting/Driving the Results
Dynamic and extensive changes are occurring in the rail grain shipping market, and in the world market for grains and oilseeds. These include:
- Growth in demand, particularly soybeans to China, as well as others, all of which are favored through the PNW; and,
- Increases in PNW and California basis relative to the U.S. Gulf;
- Increasing ocean rate spreads favoring shipments through the PNW, thereby increasing the basis at that market;
- A near doubling of exporting capacity in the PNW port region.
- GM technology improving productivity growth rates, particularly in corn.
- Shuttle train rates, and incentives that have reduced overall costs of shipping for those movements conforming to the shuttle provision. This reduction is relative to barge and truck/barge shipments.
- UFC is seeking to develop a shuttle plant at Brownton, MN
- Target would be to compete at the PNW and/or other export rail corn markets, and which would compete with local corn demand (ethanol and livestock) and truck/barge to Savage, MN
- A detailed plan has been conceived, and preliminary estimates of varying elements have been completed
- Dominate market for MN feed is California followed by Pacific Northwest (PNW), and then distantly shared shipments among U.S. Gulf, Texas Gulf, St. Louis and Savage, MN.
- California feed had an average basis value of 10c/b greater than PNW
- Overall the basis would be improved relative to the average paid by UFC, by about 27c/b
There are two reasons for this: very strong PNW track basis (and CA basis) relative to the U.S. Gulf; and shuttle rates being highly competitive with river-barge.
The dominate market for MN soybeans is the PNW with 54% of the shipments, followed by the Texas Gulf. The average margin if shipped to the ‘best market’ would have been improved by: 5c/b.
Due to the conclusions drawn from the modeling building exercise, and Wilson's research suggested a large market potential for a shuttle at Brownton, MN.
– Draw area: Largely from NE of Brownton, MN
– Destinations: Largely be PNW and CA markets
Favorable shipping and basis relative to incumbent movements
– Soybean shipments would be relatively minor
– Relaxing the throughput restrictions mostly impacts other shuttles versus Brownton
– A Brownton shuttle would attract some grain from other UFC plants.
– Allowing for somewhat representative price differentials do not impact the results drastically
Wilson's findings were supported once the shuttle loading facility opened in Brownton, MN. Most of United Grain Systems' trains have headed to the California and Texas rather than the PNW.