By Michael Hirtzer
CHICAGO, Dec 5 (Reuters) – U.S. grain transportation costs
have slumped to multi-year lows as last winter’s weather-related
shipping problems have so far failed to materialize, but even a
modest cold snap could still overwhelm the nation’s train, barge
and truck network and send costs soaring again.
Food company Kraft Foods Group Inc warned recently
that industry wide logistic problems would drag on earnings, and
grain processor Archer Daniels Midland Co said this week
that rail service troubles could flare up in the first quarter
of 2015.
“We still have room to have issues here as we get into the
winter and I don’t know that we have a large amount of
confidence that the rail situation’s going to get better,” Craig
Willis, vice president of ADM’s ethanol business, told investors
at a presentation.
Freight costs surged to historic highs last winter as
shippers struggled to secure the railcars, boosting demand for
barges and trucks.
Rail costs now are either at or below last year’s levels
after hitting all-time highs in early October as demand surged
for moving record crops. Shuttle train costs are 49 percent
lower and unit train costs are 36.5 percent lower.
Mississippi River barge prices have fallen 48 percent from
an October high to the lowest early-December level since 2012
and truck costs are at a three-year low.
The low freight rates have boosted grain buyer bids to
farmers, but selling has remained lower than shippers
anticipated so many have leased freight they do not need.
Farmers sales may accelerate with the new tax year in January.
“Some people were a little long, probably double-bought,
from when things weren’t so wonderful,” an Atlanta rail broker
said.
Shippers might hold on to their extra purchases in case
service deteriorates from current levels, which industry figures
show are largely worse than last year. According to the latest
Association of American Railroads data, average grain unit train
speeds on Class 1 railroads were identical to slower than a year
ago.
For barges, slow selling of corn and soybeans by farmers has
limited demand for freight, while the supply of empty vessels
has soared. Brokers said rates could remain under pressure as
long as farmer sales to elevators stay light.
“There’s 900 to 1,000 Gulf unloads that have been generated
on a weekly basis for the last month. We’ve just got a surplus,”
a barge broker said. “But if we get a cold snap … that changes
everything.”
(Editing by Andre Grenon)