As producers harvest this year's massive corn crop, the transportation network that shuttles grain from the field and delivers it to its final destination will experience significant challenges.
It's a matter of the sheer amount of grain. Last year the combined corn and soybean yield topped out at 13.7 billion bushels. This year, the USDA's August estimates put the corn crop at 13.1 billion bushels, a 24% increase over 2006. Then add expected soybean production of 2.63 billion bushels (down 18% from last year), and you have more than 2 billion bushels of additional grain in the U.S. grain marketing system.
Although storage capacity has increased across the Midwest, and suppliers of grain-handling equipment have enjoyed a banner year, there's still a massive amount of grain that will continue to work through the system, well after the last combine rolls out of the field.
Filled to capacity
Grain elevators in North Dakota have reported that wheat there is being stored on the ground due to railcar delays. And a sharp rise in 75 to 110 grain car shuttle bids this fall suggests that grain shippers expect a tight market for railcar deliveries into and during harvest.
Add one more wrinkle: Low water levels and scheduled lock maintenance and repair could lead to lighter barge loads, narrower channels, fewer barges per tow, more towboat trips and increased towboat fuel times — all resulting in increased transit times and costs of shipping.
“Everyone is cramped to find capacity,” says Frank Dooley, professor of agricultural economics at Purdue University. “Transportation will be very tight.”
In Indiana, there's likely to be an additional 90 million bushels of grain in the system. “The entire transportation system has worked quite well to get grain where it's needed,” Dooley says. “But this increased volume has come on suddenly, so I expect there to be some very significant bottlenecks in the system.”
To put the amount of grain in perspective, 1 billion bushels of grain will fill 1,098,901 semis (each with a 910-bu. capacity) or 357,142 jumbo hopper railcars (each with a 3,500-bu. capacity).
Charles “Shorty” Whittington, owner of Grammer Industries, Grammer, IN, says this year's crop will be a tremendous challenge for the entire transportation industry. “Demand on trucking services will be intense,” he says. “Demand for drivers has increased dramatically, and there isn't a pool of trained and licensed seasonal drivers to pull from anymore.”
Whittington says demand for truck trailers used in the agricultural industry has exploded as well, and there's more than a year's backlog for some trailers. “In 1997, trailers used to haul anhydrous ammonia cost us $67,000,” he says. “Today, there's a year wait and the trailer costs $106,000. And we're going to see a lot more ammonia demand next spring.”
The Agricultural and Food Transporters Conference of the American Trucking Association is working with Congress to enhance the agricultural exemption from the hours-of-service rule and increase the allowable gross weight of trucks from 80,000 to 97,000 lbs. with a supplementary third axle on the trailer. “These are huge benefits and will help,” Whittington says. “But we still will need more qualified drivers to handle the additional loads.”
This spring's busy period was just a taste of what this fall and winter will bring, Whittington says. “I don't know if we can really prepare for this much grain coming into the system,” he says. “It's going to make for a lot of long days and nights, but we'll work through it.”
Paul Hammes, vice president and general manager of agricultural products for Union Pacific, says the company has prepared for the onslaught of grain that's moving into the transportation system. The company has added freight cars and is bringing more out of storage. “We also have a good supply of locomotives, and the crews are ready,” he says.
Union Pacific saw a steady increase in demand through the late summer and into the fall, driven initially by a wheat harvest that was up approximately 20%. And customers are working to secure railcar space.
Dan Mack, vice president of rail transportation and business development for CHS, says the additional grain moving through all marketing channels will create challenges for everyone involved, but perhaps the biggest challenge will be the ability to find storage for the grain. “The phenomenon of more corn acres puts a significant amount of stress on the overall storage capacity,” Mack says. “Northern and western areas that are traditionally not as dense in corn production have not had the opportunity to build out their infrastructure, so the storage crunch may be more exaggerated in those areas.”
But the volume of corn entering the system will affect even traditional corn and soybean areas. “There will be a lot of grain moving through the system,” Mack says.
As harvest progresses, experts agree that covered storage will be at a premium and a lot more temporary storage facilities will spring up.
Brad Stockmarket, branch manager of the Excel Co-op in Reynolds, IN, says the cooperative is gearing up by adding temporary storage space. It added permanent storage space last year. However, Stockmarket notes, additional storage can be expensive and “we can't all expand at the same time.”
Dooley expects that temporary storage will be used extensively, depending on the area of the country and the speed of harvest.
“We will probably see more grain on the ground than in the past,” Mack says. “We have the scenario where there is a significant amount of production coming, still relatively high prices, expected large market carries and rail freight market increasing in costs.”
River Valley Cooperative recently added 475,000 bu. of storage space at its facility in DeWitt, IA. “We're confident that we will be able to handle this fall's harvest,” says Tom Leiting, general manager of River Valley Co-op. “As most retail elevators, we've done some space expansion and repositioning. We're ready to go.”
“From the 1990s through last year, the industry was very efficient at moving corn to market,” Dooley says. “But ethanol has changed the grain-handling and storage system, and rather suddenly.”
It's likely going to take a few years for the transportation system to become efficient again. And ethanol may even change the dynamics of how and where grain is shipped. “We could see more localized shipping to ethanol plants, or we could even start to see grain flowing up the rivers to ethanol plants,” Dooley says.
Hammes says that the total supply of corn moving into this year's harvest, and a high carryout expected next year, should not have an immediate impact on grain shipment patterns. “However, as we move down the road, increased ethanol demand will change shipping patterns,” he says.
Union Pacific is adding to its system, having spent more than $100 million on its infrastructure in Iowa and Minnesota, and it will invest another $23 million to add to the infrastructure in Nebraska. It not only will need to move more grain to the ethanol plants, it also will need to transport the ethanol and dried distillers grain. “That's in addition to our traditional feed and export markets,” Hammes says. “We need to make sure our system is there to handle the ethanol market as well as our current customers.”
The bottom line is that producers should map out other options if severe bottlenecks occur. “There will be grain on the ground, but where and how much is still an unknown,” Dooley says.
And what about a wet harvest? “The market never has enough capacity for drying,” Mack says. Throw in a large-scale need for drying space, and the ability to move grain to market would be under severe stress.
Mark Orr, general manager of Ag View FS in Princeton, IL, has added three more trucks to the company's grain-hauling fleet. The company also contracts with private haulers during the harvest season. “There will be a lot more grain to handle,” Orr says.
The softened demand for rail transportation as a whole during the past six to 12 months has freed up some capacity for agriculture, but here too the value of rail freight is on the rise.
“Ethanol is shifting the transportation dynamics,” Mack says. “But ethanol shift in grain movements is still fully undefined. It continues to change as the local demand for corn shifts the transportation lanes, and where grain comes from.”
Scott Docherty, general manager of Topflight Grain Cooperative in Bement, IL, has contracted additional trucks and railcars. “It's always been a challenge to secure additional trucks, but we started earlier than normal,” he says. In addition, the cooperative added permanent and temporary storage at its locations.
He's also talking with his customers. “We've had conversations with our farmer base about this year's harvest,” Docherty says. “They know that because of the sheer volume of the crop, harvest may be extended out an extra week to 10 days.”