This article has been reprinted from the May 16 USDA Grain Transportation Report.

For most of 2019, inclement weather has disrupted barge traffic along the Mississippi, Ohio, and Arkansas Rivers.

This has caused year-to-date (YTD) grain barge tonnages, through the locking portions of the rivers, to fall below the 3-year average and last year.

YTD grain shipments by rail were also down, compared to a year ago, but have picked up in recent weeks.

On average, grain train speeds and origin dwell times have improved, year-to-date in 2019 compared to 2018, despite the negative effects of Midwest weather on rail operations that show in service metrics, carloads, and auction market rates over the period.

While ocean freight rates for shipping bulk grain have remained relatively low, average diesel fuel prices have increased compared to the beginning of the year.

Total grain (corn, soybeans and wheat) production and exports for the marketing year 2019/20 are projected to increase.

This could boost the demand for grain transportation service if the projections are realized.

Rail Characterized by Low Carloads and High Rates in the Secondary Market

As of the week ending May 4, 2019, YTD grain shipments by rail were down 5 percent, compared to a year ago.

While relatively high through January, grain carloads fell well below average into mid-April 2019 (GTR Figure 3).

However, grain carloads, based on a four-week running average, have resurged in recent weeks with traffic levels exceeding the 3- year average since late-April, creating a “v-shaped” trend over the period of high-low-high.

Concurrently, rates in the secondary auction market for shuttle service have generally been above average for much of 2019.

While initially trading below average in January, average bids/offers for delivery of shuttle railcars in February rose to about $1,200 per car by February 14.

Per car rates for March and April averaged $910 and $460, respectively. Compared to the 3-year average, this is a respective increase between $360 and $560 per car.

Trades for delivery of railcars in the secondary market in May are still above average, but by a smaller magnitude.

Like the trend in carloads, there has been a parallel “v-shaped” pattern in rail performance, where service levels deteriorated from January to March, due to problems caused by flooding with significant re-routing, but have improved since.

More specifically, train speeds for grain averaged 23.4 miles per hour (MPH) in January and 21.9 MPH in March, a decline of 6 percent, before improving to about 22.7 MPH.

The railroads have dealt with bouts of poor weather the past few months, including severe winter storms and washouts in February, and catastrophic flooding in the Midwest in March and April (see April 4, 2019 Grain Transportation Report (GTR)).

Despite these challenges, average YTD rail speeds and origin dwell times for grain have been better in 2019 than last year, when railroads faced adverse weather, relatively more congestion, and other service challenges (see April 26, 2018 GTR).

Flooding Causing Significant Navigation Disruptions

As of May 11, calendar YTD grain barge tonnages, through the locking portions of the Mississippi, Ohio, and Arkansas Rivers, were 8.8 million tons.

This is 32 percent below the 3-year average and 24 percent lower than last year. For most of 2019, above average rainfall has caused high water conditions that have disrupted traffic.

Typically, by mid-May, there is continuous barge traffic (both up and down river) on the Mississippi River between Minneapolis-St. Paul, MN, and the Gulf of Mexico.

This year, navigation has been blocked by the closure of several locks above St. Louis and by low bridge clearances in certain areas due to high water.

This has affected the movements of downbound grain and upbound fertilizer.

Figure 1 shows weekly tonnages have been lower than average for most of 2019.

Calendar YTD corn barge shipments were 4.5 million tons, down 43 percent compared to the 3-year average.

YTD soybean barge shipments were 3.4 million tons, 18 percent less than the 3-year average.

On May 3, the Mississippi River gauge at St. Louis exceeded 38 feet, which is the threshold at which the U.S. Coast Guard closes the river to all vessel traffic in the St. Louis Harbor (see figure 2).

As of May 15, the St. Louis gauge dropped to near the 38-foot stage, and the river re-opened to a back-up of barges waiting to transit the harbor.

The river level rose above the 38-foot stage on April 3-4 –briefly stopping traffic.

The record stage was set on August 1, 1993 at 49.6 feet.

On May 10, the U.S. Army Corps of Engineers (Corps) opened the Bonnet Carré Spillway for the second time this year.

The spillway, located on the Mississippi River north of New Orleans, functions to decrease flood conditions through the New Orleans region and reduce flood risk to the city and surrounding areas.

Operation of the spillway diverts Mississippi River floodwaters, via Lake Pontchartrain, into the Gulf of Mexico.

Prior to this opening, the spillway was opened on February 27.

The Corps indicated this is the first time the spillway has been opened twice during the same high-water event since the spillway was first used in 1937.

Dry-Bulk Freight Rates Continued to Remain Low

To the delight of shippers, ocean freight rates for shipping bulk commodities, including grain, have continued to remain relatively low, despite the wave of optimism by vessel owners thinking the market would rally.

As of May 9, 2019, the cost of shipping bulk grain from the U.S. Gulf to Japan was $42.50 per metric ton (mt), a 10 percent decrease from the beginning of the year, and an 8 percent decrease from the same period last year.

The cost of shipping from the Pacific Northwest was $23 per mt, a 3 percent decrease from the beginning of the year, and 6 percent below the same period a year ago.

Ocean freight rates have remained relatively low since the beginning of the year.

However, the January 1, 2020 deadline for International Maritime Organization’s mandate to reduce sulfur emissions from ocean-going vessels, could impact both newly-built vessels and vessel demolition activities.

As a result, an upward pressure on the rates may occur, at least in the short term (see April 25, 2019 GTR).

Year-to-Date 2019 Diesel Fuel Prices on Upward Trend

Average U.S. On-Highway Diesel Fuel Prices have increased 11 cents since the beginning of the year.

Prices increased 8 cents in February, remained relatively flat in March, then increased 9 cents in April.

Crude oil prices followed a similar upward trend since the beginning of the year, averaging $71 per barrel in April.

According to the Energy Information Agency’s latest Short-Term Energy Outlook, crude oil spot prices will average $70 per barrel in 2019.

However, EIA forecasts tighter global oil market balances in mid-2019 and increasing supply disruption risks globally, all of which could put additional upward pressure on diesel fuel prices.

Outlook for 2019/20

According to the USDA’s May World Agricultural Supply and Demand Estimates (WASDE) report, production of corn, soybeans, and wheat for 2019/20 is projected to reach 21.1 billion bushels, up 2 percent from the past year.

Total exports of the three major grains are expected to reach 5.1 billion bushels, up 3 percent from 2018/19 (Table 1).

Production of corn is projected to reached 15 billion bushels, up 6 percent from last year.

Soybean production is projected to reach 4.2 billion bushels for 2019/20, down 9 percent from last year.

Wheat production is expected to increase 1 percent from 2018/19.

Currently, export sales commitments of corn and soybeans for 2018/19 are down 10 and 18 percent, respectively, from last year.

Wheat commitments, however, increased 10 percent from the previous marketing year (GTR Tables 13-15).

Outstanding export sales for 2018/19 are currently are up 65 and 9 percent for wheat and soybeans, but are down 46 percent for corn (GTR Table 12).

Corn and wheat exports are projected to decrease slightly for 2019/20, but wheat exports are expected to increase 10 percent (See Table).

Although the transportation demand for some grain has been affected by high water conditions on the Mississippi River, increased YTD rail shipments of grain to the Mississippi Gulf have remained strong, helping U.S. grain exports to remain competitive.