This year is going to be about as good as it gets for U.S. grain movement out of the U.S., but some factors need to be watched closely, Ken Eriksen, coordinator of client advisory and development group for Informa Economics, told attendees during the 2016 Export Exchange this week in Detroit, Mich.
According to Eriksen, this year, farmers have done a phenomenal job of producing a large crop.
“We’re going to be harvesting a record crop in the United States. You put that on top of very health Sept. 1 beginning stocks, (and) we’ve got a lot of supply in the United States this year,” Eriksen said.
U.S. capacity is about 99% utilized, he noted, adding, “There are places in the United States where we are going to have well over 100% of the capacity utilized.”
As a result, grain will be stored on the ground, in alternative bunkers or in ag bags, or some other technology will be deployed to store this year’s crop.
“Since September last year, we have been seeing our production potential increase rather generously as we’ve moved throughout the year. We’ve got a very phenomenal crop that is sitting out there.”
While the task of moving this year’s crop may seem daunting, Eriksen said the fall export program is “ginormous.”
Before the end of the year, he said 1.9 billion bu. of exports have to leave the U.S., based on what’s being seen in the marketplace right now. Accomplishing that will require shipments of about 150 million bu. a week. “We’re currently behind that pace, but it’s ramping up,” he said.
The best the U.S. has ever done in one week for export inspections was 148 million bu., which “was one year ago," Eriksen said. "We are going to have to perform at a whole new level that we’ve never sustained.”
The question is whether transportation logistics are able to work with this level and make these exports happen, he added.
One opportunity to do this is the railroad industry, which Eriksen said has been plagued by very low coal movements for hauling. He added that the rail industry also is "not moving as much oil. All other commodity movement has been lower year over year, except for grain.”
The rail companies have invested about $30 billion in the last year in their capital footprint and $20 billion for some of the years before that on an annual basis. “Some of those projects are coming home to roost,” he noted.
In the barge market, there has been a shift over the last two years. Eriksen explained that covered hopper barge use has expanded significantly. In fact, the U.S. has added 2,000 covered hopper barges in the past two years. Open barges for coal have even been transitioned into covered hopper barges. “That has really suppressed the barge freight rate environment out there,” he said.
The real challenge for the U.S. barge market is infrastructure.
“Our infrastructure is second to none in the world, but it’s getting old. It needs some help; it needs some work. It’s not just a double hip replacement anymore; it’s almost a whole body change-out when we look at our infrastructure," Eriksen said. "We are constantly monitoring how well our locks and our dams are performing. This year, they are performing really well.”
Freight rates are currently really low for the time of year, he said.
“This year, you’re probably going to see transportation perform as good as it can. The challenge for us is not being lulled into this low freight rate environment or (thinking) that freight will always be available,” he said.
Eriksen emphasized the need for the industry to continue encouraging investments in infrastructure, to demonstrate the returns such investment brings and that it’s important all the way from the farm gate to the dinner plate. Without transportation, farmers will have a mountain of debt, and someone will go hungry in the world, he added.