Most movement and price indicators — across all modes — have been down so far in 2020, compared to the same period in 2019 and historical averages. However, all modes show signs of recovery. Grain carloads have remained stable in recent months, and rail performance has been strong. For the week ending June 13, year-to-date barge volume on the Mississippi River was higher than in the same week of 2019. Despite increases in recent weeks, ocean freight rates for shipping bulk grain and average diesel fuel prices are still low compared to historical averages. According to the June WASDE, total exports of the three major grains (corn, wheat and soybeans) are expected to reach 5.2 billion bushels in 2020/21. This amounts to a 15-percent increase from 2019/20, which in turn, could raise the demand for export grain movements.
Rail: Low but Stable Carloads of Grain in Recent Weeks
Freight volumes by rail have remained considerably low. As of June 6 (the latest week of data), nearly all commodity groups were down from last year. According to the Association of American Railroads, total year-to-date (YTD) carload traffic (including grain) originated by U.S. Class I railroads is down 15 percent from last year, and intermodal traffic is down 11 percent.
Total rail traffic was at its lowest during the week ending April 22, but has since risen 7 percent. Grain carloads are down 6 percent YTD from the same time last year, but have remained stable for the past 3 months. For the past 12 weeks, an average 21,500 carloads shipped per week, 5 percent lower than the same period last year.
Throughout the year, bids for grain shuttle service in the secondary auction market have been low. They were considerably below average in first quarter 2020, but in May and June, have been more in line with historical averages. March bids car/offers averaged −$110 per car, or $800 lower than the prior 3-year average. May bids/offers were $130 below average. So far, bids/offers for the upcoming harvest months of September and October are $120 to $440 below the prior 3-year average, signaling the market anticipates more than adequate railcar supply to meet demand.
Compared to the same time in recent years, YTD rail performance metrics have been strong. Grain performance trends throughout 2020 appear to parallel the trends in total traffic discussed above. In April, average monthly speeds of grain unit trains peaked, and dwell times at terminals were at their lowest so far this year. Compared to earlier in the year, average grain train dwell times at origins were also low in April, but in May were at their lowest. Although still strong so far in June, these performance trends have reversed, as total traffic has increased. Compared to the May average, grain train speeds are up 4 percent so far in June, while dwell times at terminals are up 3 percent and grain dwell times at origins are up 21 percent.
Barge Shipping Shows Signs of Recovery From Early Difficulties Unhindered by major flooding issues (as occurred last year), barge volumes in second quarter 2020 significantly outperformed 2019 volumes. The midand upper-Mississippi River opening in week 14 led to increased traffic as the number of shippers with access to the river grew.
For the week ending June 13, the total year-to-date volume was 36 percent higher than in the same week of 2019. Early 2020 highwater challenges have mostly subsided, with moderate or severe flooding less frequent and less pervasive than last year. Although some systemwide issues with high water persist (most notably on the Ohio and Illinois Rivers), the issues are minor, compared to last year’s.
During the flooding of 2019, key portions of the Mississippi River and its tributaries closed, devastating barge traffic volumes. Figure 1 shows dramatically low volumes in spring and early summer 2019. While not exceeding the averages of 2017 and 2018, 2020 volumes are still higher than those of 2019. Despite significantly higher volumes than in most equivalent weeks of 2019, 2020’s rates have been lower than the prior 3-year average. The benchmark Illinois River rates in 2020 are closer to those of 2017 than 2019.
In 2017, high supply and fluid logistics in the barge industry allowed rates to remain low, even with some highwater challenges. Parallels to 2017 suggest, in 2020, also, the combination of relatively smooth navigation and an adequate supply of barges and towboats has more than accommodated increased shipping demand.
The closing of several major locks on the northern Illinois River at the end of June will affect shippers’ ability to use that portion of the river, but the third quarter is typically a slow period for Illinois River traffic. Shippers may respond by moving the last of the old crop grain out of storage before the locks close. However, shippers will have other options, such as continued storage, trucking to below the closed locks, trucking to the Mississippi River, or shipping with rail.
Dry-Bulk Freight Rates Ticked Up, But Remained Relatively Low
Ocean freight rates for shipping bulk grain have increased within the last 3 weeks. However, the rates are still relatively low, compared to the beginning of the year (January 2, 2020), the same period in 2019 (year to year), and the 4-year average.
During the week ending June 11, 2020, the cost of shipping bulk grain from the U.S. Gulf to Japan was $35.50 per metric ton (mt), down 22 percent decrease from January 2, 2020, down 18 percent from year to year, and down 6 percent from the 4- year average.
Also, as of June 11, 2020, the cost of shipping from the Pacific Northwest (PNW) was $18.75 per mt, down 25 percent decrease from January 2, 2020, down 21 percent year to year, and down 9 percent from the 4-year average. From the week ending March 5, 2020 to the week ending May 21, 2020, ocean freight rates decreased for 11 consecutive weeks.
Since the week ending May 28, rates have increased slightly. The initial decline in ocean freight rates was caused by the dip in the global trade of dry bulk commodities. However, according to the June 11 Transportation and Export Report by O’Neil Commodity Consulting, cargo demand has improved since the last week of May. 2020 Average Diesel Fuel Prices Increasing but still Low Average U.S. on-highway diesel fuel prices are down 67.6 cents per gallon since the beginning of the year (according to the Department of Energy’s Energy Information Administration (EIA)).
The average diesel fuel price has been falling since the beginning of the year and hit its lowest record since September 26, 2016 at the price of $2.386 per gallon as of the week ending May 18. The average diesel price has since ticked up 1.7 cents since then to $2.403 per gallon during the week ending June 15.
Demand for fuel has been slow following the COVID-19 outbreak. According to EIA, Brent crude oil prices rose in May due to the tightening in the global oil market balance. Increased global oil demand and a high adherence to production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) drove the price increase. In the June 2020 Short-Term Energy Outlook, EIA forecasts that Brent crude oil will increase in the second half of 2020.
Outlook for 2020/21
According to the June WASDE, total exports of the three major grains are expected to reach 5.2 billion bushels in 2020/21, up 15 percent from 2019/20 (see table).
Demand for U.S. wheat has declined because of uncompetitive prices in many international markets. However, foreign demand for corn is expected to recover as a result of the large U.S. crop and competitive prices. Demand for U.S. soybeans is expected to recover as 16 well. In 2020/21, U.S. corn exports are projected to increase by 21 percent from 2019/20.
U.S. corn exports are still lower than average, however, because of increasing competition from South America and Ukraine. Soybean exports for 2020/21 are expected to increase by 17 percent from 2019/20, and wheat exports are not expected to change.
Year-to-date (YTD 2019/20) export sales commitments of corn are 15 percent below the same time last year because of slow demand and low prices. YTD 2019/20 soybean export commitments are likewise down — 7 percent below last year. The beginning of the new marketing year (2020/21) commitments for wheat are down 5 percent from 2019/20.
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Information provided by USDA Grain Transportation Update.
