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US may suffer Canada-type grain transport squeeze

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The US could face the kind of infrastructure squeeze which hurt Canada's grains industry last winter, the International Grains Council said, highlighting a transportation squeeze rated as potentially the sector's "biggest story".

While prices of grain futures have tumbled, and values in some inland destinations fallen even further, to less than $3 a bushel for corn in North Dakota, premiums being charged at US ports have soared.

For wheat, at a premium of some $1.50 a bushel for hard red winter wheat, and not much less for soft red winter, the basis – the difference between cash and export values – is "close to give year highs", the IGC said, attributing the strong level to the higher prices needed to secure transport.

Basis has been "lifted by tight inland transportation and limited port loading capacity", the council said.

Grains vs energy

The requirement to pay up for transport is only likely to grow as harvest begins in earnest of US corn and soybean crops widely expected to set record highs.

"Likely record corn and soybean crops are expected to strain US rail logistics and export loading capacity further during the autumn," the council said, also stressing the competition presented by the "booming" shale gas industry too.

"Railcar demand for petroleum and related products continues to rise.

"Ideas that barge and rail freight operators will prioritise the movement of energy products could see grains storage capacity come under pressure during the peak harvest season."

'Like Canada'

Indeed, it was a "similar situation" to that which occurred last winter in Canada, when cold weather, which forced trains to run slower and at shorter lengths, added to the pressure on rail capacity.

Canadian growers accused rail companies of favouring energy products over grains, a charge the operators denied, although the government introduced a system of fines to guarantee crop transport capacity.

In the US, the transport squeeze may, for grains, "trigger additional gains in basis levels", increases which would "negatively impact export competitiveness" for US crop shipments, the IGC warned.

'Biggest story in the US'

The comments come at a time of mounting concern in the US over the potential for snarl-ups, with the autumn harvests, and winter weather, looming.

The US Surface Transportation Board will on Thursday hold a hearing to discuss claims of grain transport, with executives of BNSF Railway, the operator controlled by Warren Buffett's Berkshire Hathaway, and Canadian Pacific Railway requested to appear.

Meanwhile, US Department of Agriculture data show rising barge rates on US rivers too, with charges for southbound transport to port on the lower Illinois river up 20% year on year, on the mid-Mississippi by 30%, and on the Arkansas by 39%.

Macquarie has warned that domestic transportation could prove "the biggest story in the US this season" for the grains industry.

"The barge and rail system look likely to have lower volumes for grains, as energy products continue to takeover.

"The question is who pays for the additional transport cost - the farmer or the end consumer."


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