Severe winter weather over the past few weeks is playing havoc with grain logistics in the United States (US) with the current Pacific Northwest (PNW) corn vessel line-up reported to exceed 60 days.
Rail corridors from Midwest states such as Minnesota, North Dakota and South Dakota to the PNW ports have been hit with flooding, snow drifts and avalanches with some rail lines closed for extended periods. The delayed supply combined with excessive rain at the PNW ports has dramatically slowed the loading of vessels destined for the Asian market.
This is an extremely critical time of the season for the US market, as the trade attempts to maximise corn exports, before consumers turn to new crop South American (SAM) supplies, displacing US demand in late March. The logistics issues have pushed the cost of rail freight up significantly in the US, as exporters scramble to secure empty space resulting in some booking shipments out of the US Gulf to meet their Asian demand and limit costly logistics and port delays.
The increase in US logistics costs and hefty demurrage penalties means that spot costings put shipment of Midwest-produced corn to Asia via the PNW, at a premium to corn produced in the Brazilian state of Matto Grosso. Whilst, this is highly unlikely to occur at the moment as Brazil concentrates on its soybean export program, it does highlight the magnitude of the current US challenge.
This disruption to traditional trade flows has forced Asian buyers to look for alternate supplies to satisfy nearby demand, whilst they wait for delayed vessels to arrive. In Japan, the government is expected to approve the use of emergency stockpiles as inventories reach critically low levels.
Japan has reportedly been seeking offers from Thailand, a trade flow that has not operated for many years. There are reports of Thailand exporting to Taiwan in recent weeks. Interestingly, Australia has also been mentioned in wires as a possible source of corn.
Meanwhile, in Brazil the soybean and corn harvest has been underway since early February with soybean yields reported to be at record levels. In Argentina, the corn harvest has just begun with early reports saying the quality is better than expected after rain and flooding in January. Over the past week the southern grain growing regions have also received abundant rainfall, after being dry for much of the summer growing season.
With conditions now considered almost ideal in Argentina it would certainly seem that any production revisions to the corn crop will be to the upside. This of course will further increase abundant world feed grain stocks. However, it will also put them in a good position, if the Mexican government follows through with their threat to ban the import of US corn and turns to Brazil and Argentina to fill the void.
Here on home soil, the US story is being repeated. In Western Australia, excessive rainfall in early February has led to flooding and major disruptions to grain movement to the ports of Kwinana, Albany and Esperance. Although not 60 days, the vessel line-up has certainly increased as the rail operator rushes to repair lines and get the port accumulation task back on track.
On the east coast, rail operators are struggling to meet their commitments, which is pushing the port accumulation task onto the road. This increases the cost to exporting from the east coast and decreases competitiveness into the Asian market.
All of this at a time when Australia is trying to maximise exports of the record wheat and barley crops before the northern hemisphere winter harvest hits the world market, displacing Australian demand.
Source: Nidera weekly market report