Snarled transportation system

CHICAGO -- Bumper corn and soybean harvests in the U.S. Midwest are stretching the system for moving crops from fields to markets beyond its limits this year, driving up export costs and crimping profits for farmers and grain dealers.

CHICAGO -- Bumper corn and soybean harvests in the U.S. Midwest are stretching the system for moving crops from fields to markets beyond its limits this year, driving up export costs and crimping profits for farmers and grain dealers.

After years of drought, the bountiful harvests may have come as a relief to America's heartland if it were not for the severe transportation bottlenecks that have developed.

The rising tide of corn and soybeans is causing severe slowdowns along an interlocking network of railroads, highways and rivers. Barges and hopper cars are overbooked in a system already strained by new demand for delivery of oil by rail, a delay of repairs to river locks, and backlogs at international shipping terminals.

"Every elevator and co-op I've talked to says the same thing: They don't know how they are going to get all their December deliveries delivered," says Mike Hall, a grain broker in central Illinois. "There is just a world of grain to move in December. Huge amounts."

The Mississippi River and its tributaries are highways for grain barges and the cheapest means to haul crops from the heart of the Midwest farm belt to Gulf Coast export terminals.


When bottlenecks develop in the Mississippi system and the grain belt's rail lines, the delays can drive up export prices, making U.S. grain less competitive. They also create a glut in the interior, which can chip away at profits for the nation's farmers.

Indeed, farmers are expected to see net cash receipts from grain crops fall by 3 percent in 2013 in a year of overall robust volume, according to a late November report from the U.S. Department of Agriculture.

Many farmers protect themselves from price fluctuations after harvest by locking in prices during the summer with futures trading and other forms of forward contracting.

The decline will occur in a year of robust profits overall for farmers, with income forecast to hit $131 billion, up 15 percent from last year and the most profitable performance in 40 years. Much of the increase is from sky high livestock prices, USDA says.

Corn is the largest U.S. crop in volume and typically is a major contributor to farm income. But American farmers have faced significant challenges with this year's crop.

A late spring planting meant the harvest, which typically lasts 10 to 12 weeks, was condensed into about nine weeks. Farmers rushed to make up for the delay, bringing in the harvest from late October to early November -- the very surge that is taxing the transportation system.

"We went from zero to 60 in about two weeks' time, once this harvest started kicking in," says Martin Hettel of AEP River Operations, comparing the acceleration of this year's harvest to a race car. Hettel helps supervise the operation of more than 2,900 barges.

Operators who were stuck with empty boats in the past two years, when summer drought produced weak U.S. harvests, were expected to be booked through at least February, Hettel says.


Some shippers are already racing against encroaching winter weather and ice buildups on some waterways. Northern stretches of many Midwest rivers are closed to barge traffic, with more closures expected in coming weeks. That is expected to exacerbate the backlog for grain merchandisers already struggling to find empty space on vessels.

USDA has pegged this year's corn crop at a record 13.989 billion bushels and the soybean crop at 3.3 billion bushels.

The corn harvest -- up 30 percent from last year -- is expected to more than double domestic stockpiles, which had been depleted by drought in 2012 to a 17-year low. For soybeans, stockpiles were seen rising 21 percent after what is estimated as the third-biggest crop on record.

Grain elevators that had gone nearly empty a year ago, suddenly are stuffed with grain, thanks to the famine-to-feast shift in grain production.

Tracing the surge

The slowdowns start on the road. Trucks have been hard to come by this year, shippers say. The drought of 2012 forced some drivers who typically move grain to seek work in other industries, such as hauling rocks out of quarries, and some have not returned, they say.

On railroads, grain dealers have struggled to find empty train cars. To make matters worse, railway construction and expansion have caused trains to travel more slowly than usual this autumn, further squeezing capacity.

Stuffed with grain, hopper cars on the Burlington Northern Santa Fe Railway last month were moving at about 20.5 miles per hour, compared with 23.3 mph during the last quarter of 2012, according to data on the Association of American Railroads website.


As a result, trains stretching 100 cars long, which normally can make three trips a month between the Corn Belt and export terminals on the Pacific Northwest, are logging only two trips, grain handlers say.

Development of the huge Bakken shale deposit, which has created demand for transporting oil by rail across the northern U.S. Plains, has contributed to the slowdown. Bakken oil traveling from the Dakotas to refineries in the Midwest and elsewhere is competing for existing track capacity.

Freight costs to the Pacific Northwest are soaring. Some grain handlers who had booked freight in advance of the harvest have been able to resell the space at a tidy profit to other grain shippers caught short by the reduced flow of trains.

But those resellers can lose money elsewhere. Huge piles of grain stored on the ground outside country elevators have steadily lost value as surpluses cause prices to tumble.

"You might be able to give up a train here and there, and make $300,000 or something. But at the same time, your grain is sitting there," says a rail freight broker, who declined to be identified because he was revealing competitive business information. "The freight division makes money, and the others lose it."

Premiums for rail freight are rolling forward into the winter months.

"A month ago, December was trading at like $500 a car, and now it is worth $1,300," says Dan Mostad, grain marketing manager at Berthold (N.D.) Farmers Elevator.

One farmer in Mattoon, Ill., estimated that his local elevator had 750,000 bushels of corn piled on the ground in a mound 60 feet high and 260 feet wide. Such stockpiles suggest traffic out of the Midwest will remain congested for a long time, grain handlers say.


River traffic

Grain shipments on Midwest river systems are slowing to a trickle, too, with delays extending from Iowa and Minnesota down to the massive export ports at the Gulf of Mexico.

Near the junction of the Mississippi and Ohio rivers in the central Midwest, stalled repairs at one of the nation's busiest lock systems caused three-day delays. The blockage pushed shipping costs on the Ohio River to a five-year high.

Locks on rivers north of St. Louis are nearly a century old, but tight federal budgets have meant repairs can be made only on a piecemeal basis. Older locks typically have only one locking chamber, meaning unscheduled repairs can at times completely block the mile-wide Mississippi.

"The river is essentially closed until that is repaired, and you never know which lock it's going to be," says Andrew Schimpf, operations manager for the Army Corps of Engineers' Mississippi River Project.

The backups come to a head at the country's largest grain port complex around New Orleans. Delays in loading vessels are running to 10 days, the worst in at least four years.

The delays are all the more remarkable given that private owners of port facilities, such as Archer Daniels Midland Co., Cargill Ltd. and Louis Dreyfus Corp., have invested heavily in expanding capacity in recent years to capture rising demand from Asia.

The early winter river traffic is expected to get worse before it gets better. As temperatures fall, water levels drop and ice narrows the navigable channels on the rivers that remain open. For many upstream grain elevators, that means storing more grain on the ground through winter, leaving it exposed to rot and causing losses for the owners of the grain.

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