Grain supplies have been trending up in the U.S. as prices have remained relatively stable, causing farmers to hold onto their crops longer hoping for a boost in prices. Some of that inventory will have to be moved soon as harvest season gets underway for crops planted this past spring. Moving those crops, though, has become more difficult due to Hurricane Harvey.
With the nearly week-long shutdown of the Port of Houston and other ports along the Gulf Coast, the export of grains has been stopped. This has caused a ripple effect through the supply chain, including barge traffic that moves grains down the rivers to the Gulf Coast.
Eventually, that wheat will have to be moved, but for now trucks and barges are in little demand and there is some shifting of spot prices as a result.
“Anytime you get a disruption in the pipeline, a lot of times you see a spike,” says Jared Flinn, operating partner of Bulkloads.com. “The export market is the only other market we have for grain. When the ports are shut down, it just plugs everything up.”
For the crop year of 2016/17, the U.S. exported 27 million metric tons of wheat, and with increased supplies already this year now growing due to exports being slowed, prices of grains are dropping. That can impact rates, as shippers just don’t have the margins to cover transportation.
“We’ve been in this cycle of grain prices going down for the last four or five years and a lot of these farmers are just storing it hoping for price increases,” notes Flinn. “There hasn’t been a lot of selling because they’re waiting for a spike in prices, which hasn’t happened.”
Flinn says that as harvest season gets going, some of that grain will be moved simply because it has to, but with the current backlogs, it could trigger a capacity issue for truckers. That could be good news for rates, though.
“There could be a point where there could be some [bump] in the market and you could get some capacity shortage,” he says. And that could drive up rates.
Prior to Hurricane Harvey, exports were projecting well for the year, up 20% year-over-year from September to June, according to data from the U.S. Department of Agriculture (USDA) and analysis by the U.S. Grains Council (USGC).
Iowa’s agricultural exports are already being affected by the storm, reports Iowa Public Radio. The station reported that approximately 60% of soybean and corn exports leave the U.S. via the lower Mississippi River.
“I think when all is said and done, it’s going to be a pretty sober assessment of all of the areas that this storm has impacted, including our logistics system,” Mike Steenhoek, executive director of the Soy Transportation Coalition, told Iowa Public Radio.
One of the issues with farming in the U.S. is that so many of the crops are now exported, when there is a disruption in the global supply chain, it has a ripple effect throughout the whole system. It is a lesson that farmers learn following Hurricane Katrina in 2005 and one that will be reinforced this time, Steenhoek said.
“For Iowa farmers, it should really serve as a reminder that their viability as a farmer, their profitability, is so strongly linked with the logistics chain that allows what they grow to get to our customers not only domestically, but halfway around the world,” he noted.