Cash Market Moves

25 Jul 2016

By Mary Kennedy
DTN Cash Grains Analyst

"Bin-buster" will likely be the one word to describe the 2016 harvest. Starting with the winter wheat crop, yields so far have been reported to be anywhere from 50 bushels per acre to as high as 85 bpa or higher in some areas. USDA recently revised its winter wheat yield estimate to 50.5 bpa, which would be a new all-time high vs. the final yield in 2015.

Tim Luken, manager at Oahe Grain in Onida, South Dakota, told me it didn't take long for his winter wheat bins at the elevator to fill up. Currently, he said, "Anything that is coming through the door at this time is cash and with bins being full in the country, cash is the only game in town at this time."

"Winter wheat yields in western South Dakota have been as good as expected," said Jerry Cope, who does the grain marketing for Dakota Mill & Grain, Inc. in Rapid City, South Dakota. "I am guessing our average is in the high 50s bpa. Harvest has outrun either total farm capacity or allotted capacity at farm bins. Grain delivered to the elevator has been contracted bushels, first, and excess over storage, second. In turn we have, or will be, shipping more. For now wheat is following soybean weather and corn's export demand and will either benefit on the cash side or suffer if freight values go higher."

Moving on to the 2016 corn crop, the most recent USDA estimate is that yields will be at 168 bpa vs. 2015 final at 168.4. However, many in the trade feel USDA will raise that estimate again for 2016, given the excellent shape reported for corn all summer. As of July 17, the corn crop was rated at 76% good to excellent vs. 69% the same time in 2015.

Here's the problem: 2015 corn is still left in the bins. In the June 30 USDA Grain Stocks report, 2.47 billion bushels of corn remained stored on farms. This means corn has to start moving in order to make room for all the 2016 crops, not just corn and winter wheat.

As far as the corn reported stored on farms in the June 30 report, some of that has moved from farm storage, but likely not enough to make a huge dent in the pile thanks to prices diving since June. On June 15, the DTN Cash Index was at $3.92; one week later on June 22, the cash index was 3.57; on July 1, the cash index was $3.23 and as of Friday, July 22, the cash average was at $3.06. As the price dropped, farmers ran away from the market. To make matters a little worse, freight costs are on the rise.

At the end of June, secondary shuttle (shuttles no longer needed) freight costs were at $50/$150 per car (over tariff costs) for July, August was at $0/100 per car, September was at $0/$200 per car and October-December was at $450/$650 per car. On July 19, freight was quoted at $700/$900 for the rest of July split, August was at $400, September was at $300/$750, October was at $1,000/$2000 per car and full October, November, December was at $550/$750 per car.

To put it in perspective, the shuttle tariff rate per car (plus fuel mileage) cost for corn delivered from Minneapolis to Portland, Oregon, is about $1.24 per car. If you want to buy shuttle cars in the secondary freight market for new crop, the added cost on top of the tariff cost is about 50 cents per bushel and that cost, in the end, may end up cutting into the price paid to a farmer; not a good thing given how much the cash corn price has dropped in the past two months.

New-crop shuttle freight costs are obviously on the rise given the expectations for a very large corn new crop along with soybeans and wheat new crop that will have to ship. Nearby costs have been moving higher due to demand and also because shuttles are not moving quickly enough to destination and back again to be reloaded. A shuttle loader in eastern North Dakota told me he has three shuttles to move in the next few weeks, but "shuttles have slowed down causing delays." The BNSF considers "normal" trips per month for shuttles delivered to the PNW at 2.5 TPM (turns per month). In their weekly rail service update, the BNSF reported that for the week ending July 16, shuttle TPM were at 3.0.

Dakota Mill and Grain, which is serviced by the Rapid City, Pierre & Eastern Railroad (RCPE), doesn't have a secondary freight market but is affected by other railroads that do, as well as rising barge freight. "We watch BN freight and notice bids are strong through the end of the year," Cope told DTN. "You are right, nearby freight values have jumped. From what we hear, there is fall demand and indications of a strong corn export program that will keep shuttle resale values well supported. We don't follow barge freight as close, but it is reasonable that stronger rail demand creates barge demand. The railroads are leaving the door open for rate increases after November and if they follow their usual pattern, would not be surprised to see an attempt for $200-plus per car (5 -- 6 cents per bushel)."

Barge freight on the Mississippi River and its tributaries reached all-time highs in the past month. USDA in its June 23 Grain Transportation report said, "Current grain barge rates have increased to the highest levels since November 2015, based on increased demand from higher shipments. As of June 21, St. Louis to New Orleans grain barge rates were 300 percent of tariff ($11.97 per ton), a 40% increase compared to last week, and 18% above the five-year average. Rates at other major barge origins had 25% to 51% weekly increases and were 10% to 27% above the three-year average. The largest weekly increase for export-barged grain was at origins on the Ohio River. Corn shipments have been up as the last four weeks of corn inspections at the Mississippi Gulf were 120% of last year and 151% of the three-year average. Continued concerns over tight corn supplies in South America, especially Brazil, may be driving the current increase in corn exports and may be causing the higher barge rates."

Since that report, costs have come down some, but remain well above average for this time of year. For example, barge freight on the Illinois River for the week ending July 19 was 9% higher than last week, 12% higher than last year at this time and 27% higher than the three-year average.

A northeast Illinois grain merchant told me that he has quite a bit of corn to move to be shipped to the Gulf via the Illinois River. He agreed that high freight costs are not a good thing for the farmer with the lower prices we are currently seeing. He added that he has heard talk of bulk ocean vessel freight moving higher as well.

That means that the piece of pie going to the farmer will just keep getting smaller.

Mary Kennedy can be reached at mary.kennedy@dtn.com

Follow Mary Kennedy on Twitter @MaryCKenn

(CZ/SK)