Obviously the extreme cold weather this week across the country has been a major headline. Not only did the “polar vortex” affect people, the frigid cold temperatures impacted grain and oilseed logistics. Here are four ways the cold has impacted movement of corn and soybeans across the nation.
1. Service delays
We've witnessed weather-induced delays of rail service between 24-72 hours in many areas of the Midwest. Some railroads have been stressed to accommodate the sizable 2013 harvest. The weather has compounded the problem. The snow and cold weather can obviously hamper movement, but it can also cause equipment malfunctions when loading and unloading grain and oilseeds. The weather delays, along with the service delays that were already occurring, have resulted in fewer turns for locomotives and rail cars, which is the equivalent of removing rail assets from a network. A round trip of a unit train of grain from Minnesota or Iowa to the Pacific Northwest is usually 12 days. We are now seeing round trips as long as 18-22 days.
2. Plant capacity
For soybean processors, biodiesel facilities, ethanol facilities, etc. any delay in service is of sizable concern. These facilities are designed to run at full capacity or at least with a consistent throughput that does not fluctuate from day to day. Most deliveries to these facilities occur via truck, which has been significantly hampered due to the weather. Most processing facilities are not simply able to make a double batch of product tomorrow if they receive no deliveries today. If a facility can't operate on a particular day, it can be quite difficult to recover from that.
3. Increased ice accumulation
It is typical for the Upper Mississippi River (north of Quincy, Illinois) to be closed for barge transportation during December thru late February/early March due to winter weather. However, the Illinois River and the segment of the Mississippi River between Quincy, Illinois, and St. Louis are typically open year round. We've witnessed increased ice formation and accumulation in these segments this past week. Greater ice accumulation results in a narrowing of the navigation channel. The number of barges that can be lashed together to form a tow or flotilla is reduced. This results in lower efficiency and higher transportation costs. The increasing temperatures late this week are improving the conditions, but it has caused challenges.
4. Export competition
An important backdrop to these logistical concerns is the fact that 80% of U.S. soybean exports occur between September and February. When the South American soybean harvest comes online during February, March and April, U.S. soybean exports drop dramatically. Conversely, when the U.S. harvest occurs during the fall, South American soybean exports drop significantly. As a result, when we experience some sort of logistics or transportation delay during this critical period of the year, it causes great concern among U.S. soybean exporters. The soybean industry – given the competitive pressure from South America – does not enjoy the luxury of holding onto a shipment of soybeans for an elongated period of time and then resuming those shipments once the logistical constraint has been addressed without some sort of penalty or cost. While supply chain disruptions during this time of the year are of concern to corn and wheat shippers, these commodities have less competitive pressure from South America and therefore less immediate pressure to move product through the system to the ultimate destination.
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