No export bonanza this year from record U.S. harvest

CHICAGO -- The largest U.S. grain harvest in history has pushed prices to four-year lows, which usually means a sales bonanza for the world's largest food exporter. Not this year.

CHICAGO -- The largest U.S. grain harvest in history has pushed prices to four-year lows, which usually means a sales bonanza for the world's largest food exporter. Not this year.

Traditional rivals and aggressive new competitors with their own huge harvests, such as Ukraine and Russia, are leveraging the dollar's strength to snap up a bigger share of a market that is shrinking as importers themselves boost output.

In addition, a clogged domestic transport system has pushed rail and river freight rates sky-high, making it expensive to bring the mountains of grain to ports for shipping. That is driving down what farmers get paid by exporters, encouraging many to hold on to their crops hoping U.S. rivals will eventually run down their stocks and bids for their grain will pick up.

"We're going to get this crop harvested, put it away and our exports are going to pick up," says Jerry Mohr, president of the Iowa Corn Growers, who farms 1,100 acres of corn and beans near Davenport, Iowa.

Mohr hauls his crops to a nearby elevator on the Mississippi River, where it is loaded on barges for shipment to export facilities at the Gulf Coast. He expects prices there to weaken in coming weeks when the mammoth crop clogs the pipeline.


"There is going to be so much corn around and no place to go with it," he says.

Rail congestion caused by soaring demand for hauling crude oil by rail sent rates from the usual $200-300 per a 100 ton rail car just little over a year ago to around $5,000 this harvest season. Barge costs for harvest time shipping hit records in some areas this year.

"Agriculture has not paid that price before," says analyst Stephen Nicholson with Rabobank, a major farm lender.

As U.S. share of the global export market shrinks, analysts expect the resulting supply backlog will mean more soybeans planted in the U.S. and less corn and wheat next season. That will add to the shift in world grain trading patterns, with the Black Sea region continuing to be an aggressive world player in grains.

The mountains of grain left behind will be hard for the domestic market to absorb, weighing heavily on the farm economy and pressuring everything from farmland values to farm machinery sales.

Exports of corn, the biggest U.S. cash crop, are expected to drop 9 percent this season to 1.75 billion bushels, according to the U.S. Department of Agriculture. Big crops overseas will reduce total world imports by 8 percent to 4.4 billion bushels.

Corn prices at the U.S. Gulf Coast export terminals are now around $12 per metric ton higher than in Ukraine and Brazil's big Paranagua port, and $17 above Argentine exports, according to Reuters data. Ocean freight costs from the United States are not cheap enough to offset those price differences.

Several years of high prices, bolstered by growing demand from China and an expanding biofuels industry, encouraged farmers worldwide to plant more crops and invest in the infrastructure to move them. Competitors such as Brazil, Ukraine and other Black Sea producers will start running out of corn supplies by February or March, giving U.S. players a chance to return to the game, grain analysts say.


"I think there is steady demand moving forward in January, February and March but not anything that's going to knock our socks off," says one U.S. wheat exporter who declined to be named. "It's still a function of cheap Black Sea prices and European prices," he added.

Combined corn, soybean and wheat exports from the United States are projected to make just 30 percent of world trade this season, the lowest U.S. market share on record for a non-drought year.

Farmland values, equipment sales suffer

Low grain prices have already stalled a rally in farmland values while farm equipment sales have slumped, prompting market leader Deere & Co. to idle several plants and lay off 1,000 workers.

It is a similar story for wheat, even with domestic output falling 5 percent this year to 2.04 billion bushels, USDA expects end-season stocks next June to rise 11 percent.

"The Ukrainians, the Brazilians, the Argentineans are cheaper than we are in corn. The Russians and everyone else is cheaper than we are in wheat," says Dan Basse, head of AgResource, a market adviser in Chicago.

"We believe USDA's export number could be 100 to 150 million bushels too high on corn. We think their wheat export number is 25 million bushels too high."

USDA is expecting wheat exports to drop 21 percent this season to 925 million bushels, the lowest in five years.


And while USDA forecasts soybean exports to rise 3 percent to 1.7 billion bushels thanks largely to China's guzzling of the edible oil and livestock feed made from the oilseed, it also predicts U.S. end-season stocks to rise almost 400 percent.

The build will come partly because Brazil's exports will be huge again this year after rising 30 percent in the past two years and partly as China itself is building up stocks.

"I think it's more an issue of the ample supplies of competitive stocks than it is about our record crop and our large potential export surplus," says Rich Feltes, vice president of commodity research at brokerage RJ O'Brien.

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