JUly 5, 2017
Strong Grain Rail Carloads This Spring Showed That Shippers Need To Watch Global Commodities Market
U.S. grain carloads are up by 25% versus May of last year. This increase in grain car traffic was driven by strong exports demand. While the activities have been exciting for rail shipping, this year-on-year gain will be short lived if US grain prices do not stay competitive in the international market.
In the past few years, the trend for grain railcar loads showed a peak in October and November around harvest time. Grain carloads then started to drop in December and held steady during the first quarter of the year. Grain carloads typically bottomed out in May and June. This late spring slump did not happen this year due to strong exports. Despite the freezing rain and wet snow that caused some rail shipment delays, U.S. corn exports out of the Pacific Northwest (PNW) have been strong this year. In fact, rail grain carloads to the PNW for May and June are double that of 2016, and triple that of 2015. This increase has been driven by heightened demand for U.S. corn after the drought in Brazil, and shows how rail carloads are intertwined with the global commodities trading market.
Shippers should keep an eye on those markets; Brazil grain is looking healthy this year. In fact, the market is expecting a record harvest for Brazil grain in 2017. Since grain prices have been depressed in the past two years, transportation costs will have to further drop for U.S. grain to remain competitive for exports. This means that unless there are significant changes in the prices for grain, transportation demand for grain may decline in the coming year. It is then unsurprising that the USDA is projecting weaker grain demand for both exports and domestic use.