So far, states have harvested 12% of the corn crop and 8% of the soybean crop.
It's no secret that grain shippers and receivers have dealt with a variety of transportation challenges in 2022, from congestion at ports to poor rail service.
Rail issues remain despite some progress
The Class I railroads have struggled with service issues throughout the year.
Poor service in the first half of the year led to a two-day hearing in April at the Surface Transportation Board (STB) on urgent rail service issues. The railroads were also required to provide detailed service recovery plans and weekly status updates to STB.
Since June, grain rail service has improved, but some issues remain, and at the same time, grain carloads have been declining.
It is unclear whether railroads have in fact improved their ability to handle grain demand, or whether the improved grain metrics only reflect less grain moving on the rail network.
The metric of unfilled grain car orders reported to the STB every week illustrates these trends in service issues.
Across all seven Class I railroads, this number peaked in June at its highest level ever reported since data collection started in 2017.
Since then, the number of unfilled grain car orders has declined significantly, but as of September 21, it is still 457% above the average of the same weeks in 2018-21.
There are also important differences across railroads.
- BNSF Railway (BNSF) reduced its unfilled grain car orders from a peak of 11,365 in June, to only 479 in the latest data
- In contrast, Union Pacific Railroad (UP) has only reduced its unfilled orders from an August peak of 7,006 unfilled grain car orders to 5,674 cars in the latest data
These data suggest grain performance during harvest could vary significantly across railroads.
Rail labor shortages impact service
Throughout the service crisis, railroads have consistently cited labor shortages as the primary cause behind the disruptions. In the early months of the pandemic, facing temporarily low demand, the railroads accelerated a years-long trend of cutting their labor force.
When demand picked up, however, they were then trying to rehire amid tight labor markets. https://www.csx.com/ (CSX) and Norfolk Southern Railway (NS) have both made progress in hiring, since the start of the year, however Norfolk Southern is still well below prepandemic employment levels.
Both BNSF and UP have made much less progress increasing their transportation workforce since the start of the year, and both also remain well below pre-pandemic levels.
Although rail service metrics have improved, the fact that transportation employment remains low raises questions about how well railroads can handle grain rail demand through the rest of the harvest season.
Tight barge supply reduces volumes, increases rates
The barge industry has had to balance a tight supply with increased demand throughout the year.
During the winter, severe storms and icy conditions limited barge traffic on the Upper Mississippi River.
In the spring, rising coal exports to replace reduced Russian coal and gas from the war in Ukraine — along with high waters levels — reduced barge capacity and increased demand for the use of barges.
For example, from March 1 to May 31, total downbound non-grain volumes on the Mississippi River reached 14.3 million tons, 7% higher than the 5-year average and 3% higher than the same time period last year.
In the summer, hot temperatures throughout the Midwest and low river levels in the lower Mississippi River led to draft and tow restrictions.
At the same time, the barge industry, like the rail industry, has struggled to hire and maintain workers.
Tight barge supply has resulted in low grain barge volumes and high rates, especially recently.
- For the week ending September 24, year-to-date downbound grain volumes on the Mississippi river reached 23.9 million tons, 4% lower than the 5-year average and 10% lower than the same period last year
- Since the beginning of September, 1,890 grain barges have unloaded in New Orleans, about 39% fewer than the 5-year average
Similarly, barge freight rates have increased steadily since early August.
As of September 27, the St. Louis barge rate for export grain was a record 1,250% of tariff ($49.88/ton), 95% higher than the 5-year average, and 58% higher than same period last year
The tight barge supply is problematic for grain shippers heading into harvest.
Unless barge supply improves, the increased demand for barges from grain shippers during harvest will likely put even more upward pressure on barge rates.
Lower crop production might ease transportation tangles
USDA’s September World Agricultural Supply and Demand Estimates (WASDE) report predicted lower production and reduced exports, which will both translate into lower grain demand for rail and barge making harvest transportation demand more manageable, despite ongoing supply issues.
Bids for railcars in the secondary auction markets can provide an indication of rail shippers’ expectations of service in the coming months.
If shippers are concerned about their ability to obtain cars from railroads, they will bid more in the auction markets to ensure car service. Average bids for service in October, November and December (fourth quarter) have been well above average since March.
So far in September, bids for fourth quarter service have averaged $1,370, over $1,000 more than average September bids for fourth quarter service between 2018 and 2021. Bids for service in October and November, however, have both come down significantly in the last few weeks.
These trends suggest shippers’ expectations about harvest rail service have improved recently, despite lingering service issues.
As a parallel indicator for barge, the average St. Louis 3-month barge rates for October, November and December (bid in July, August and September, respectively) have all exceeded the 5-year average.
The October rate averaged 802% of tariff ($32/ton), 67% higher than the 5-year average of 479% of tariff ($19.11/ton), and 84% higher than last year’s value of 436% of tariff ($17.40/ton).
The November and December rates have come down 26% and 31%, respectively, from the October rate, though both are well above the 5-year average.
Similar to rail, this data suggests that, while expectations about harvest barge rates have somewhat improved, the barge industry still expects rates to remain high through harvest.