Tough times are ahead for the grain industry, as it witnesses a slump in grain prices fueled by the drop in global grain exports. This comes in the wake of abundant Russian grain harvest this year which has kept international grain commodity prices low.
In particular, the price of wheat has fallen spectacularly by 36% over the last three years, plunging beneath the break-even point for wheat production in the U.S., to a rate that is not sustainable for local cultivators. This has led to a record low in wheat production over the last 99 years. The price cascade is not just in the case of wheat, but is ubiquitous across the industry as U.S. farmers brace themselves to witness a slump in incomes, which is expected to hit a 12-year low this year.
The U.S. wheat futures further fell by one percent yesterday as the market witnessed the monthly supply and demand report from the U.S. Department of Agriculture which has forecasted the wheat ending stocks this year to a record 271.2 million tonnes.
In direct relation to this situation, is an exodus in a grain hauling industry as truckers suffer from low rates and a sluggish market. FreightWaves caught up with Jared Flinn, the operating partner of BulkLoads, a bulk freight load board for grain haulers to discuss the impact of this migration on the future of grain hauling.
“One of our biggest hiccups now is that the export market for grain and commodities has been really low. The U.S. dollar has also been really strong, which has kept a lot of our grains from being exported to foreign markets,” he said.
Since there is a lot of grain in the country without any markets for it, Flinn explains that there has been “limited movement and not a lot of demand on the trucking side.” He believes that the migration of grain haulers from bulk hauling was evident right from the time when Hurricane Harvey desecrated Houston last year.
“Since the hurricane, we have seen the market tighten up on the reefer and flatbed side. I think that led to a lot of these hopper carriers to switch over to those modes,” he said. “Rates have been so low here, and the guys see higher rates there. With trucking, it doesn’t take a whole lot to switch equipment types and haul.”
A lot of these truckers have been hauling grains for many years at a stretch, but since the rates have plummeted beyond control, they have been forced to move out to other segments. “A lot of independent small owner-operator guys that make up the majority of the industry were affected by the ELD mandate. And for the guys on the verge of retirement, this was the last straw to exit the market,” said Flinn. “The ELD and the rates have been a bad combination for them to even stay in trucking.”
A lot of the grain haulers operate regionally and on a smaller radius, when compared to truckers who work in the energy industry. Thus, the ELD mandate is particularly unforgiving on these haulers as the Hours of Service clock cannot be stopped once initiated. “It needs to be seen how many of these truckers are going to continue running localized and be ELD compliant,” said Flinn.
But for haulers who persist, the grain industry would still be good on their bottom line. Flinn contends that if the industry continues to see haulers exiting the market, the demand would eventually come back. Also, there still exists the need to haul food and feed ingredients to run the food supply chain of the country, with a significant portion of the grain haulers delivering loads to livestock farms and flour mills.
Flinn insists that the reducing capacity in grain hauling would be a concern when the country gets to its harvest months. For instance, the upcoming summer would be the season of wheat harvesting in the Midwest, and if capacity is not around to haul grains, the industry might be up against the wall. As supply chains across the country struggle with a shortage of truckers, an exodus from the grain industry would have an impact on its future - the extent of which is yet to be seen.
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