Last week I told you corn was headed for a gangbuster year, depending on weather of course. How that crop gets moved to export markets is an insider's story most farmers might find interesting.
You can bet companies that ship grain by rail have already anticipated the size of this fall's corn harvest, as well as just about anything else that might impact rail car movement, says Sameer Gaur, segment leader for GE Equipment Services, one of the leading lessors of rail cars used for agricultural purposes by rail lines and shippers. Gaur says GE leases about 30% of the 175,000 grain cars used in the United States. Companies like ADM and Cargill own their own fleets of course, but they also lease several cars from companies like GE.
Sameer Gaur, segment leader for GE Rail Services, says railcar supply is extremely tight right now in the United States.
"What we do well is anticipate the market's needs," says Gaur. "We're very flexible in terms of repositioning the fleet. If the East Coast is going to have a bad year we may reposition the fleet to the west."
Both ethanol and exports will have an impact on rail car positioning over the long term. What happens when export demand to China picks up?
At this point, we have not seen enough evidence to say that China will become a major importer of U.S. corn, says Gaur. "I'm not sure the Chinese government can answer that question right now," he says. "Improvements in production practices and acreage shifts may reduce reliance on imports.
"China does not have access to that much arable land, so they're going to be importing again - it's just a matter of time," he says. "They became exporters because their farmers became more efficient. They will become importers again because their economy has picked up."
Right now corn stocks are low in China and some grain imports may be necessary. If China does become a major buyer of U.S. corn, it could have a significant impact on railcar demand.
"Railcar supply is extremely tight right now," he says. "We have an aging hopper car fleet and new car backlogs with builders are well over a year."
Even so, there's a host of other market factors that must be looked at, including corn supply to meet export demand and increased demand for ethanol corn. High corn prices may make U.S corn unattractive. There is also the issue of transportation costs. Spiraling rail and ocean freight rates may make U.S. imports unattractive as well, notes Gaur.
If those factors come in to play there may not be enough supply to meet any increased demand from China.
Ethanol grain tends to be moved by truck, not rail, and tends to get processed where it is grown. However, rail will play an important role in moving the ethanol byproduct Dried Distillers Grains (DDGs). They need to be shipped to feed markets, particularly to the cattle feedlots in the southwest and southeast. "It's almost like a new market for rail," Gaur says.
What impacts rail freight prices? Mostly barge rates, says Gaur. The further away from the Mississippi, the more shippers are at the mercy of the railroad. But they still have to compete with each other.
Boosting efficiencies There's a lot of congestion and inefficiencies in the rail system right now. What farmers should watch for is how quickly the main rail companies - Burlington Northern, Union Pacific, Norfolk Southern and CSX - begin to improve efficiencies. In recent years the companies began replacing aging locomotives and cars with newer, more efficient models.
Typical rail cars, with 4,750 cubic foot capacity, can last about 30 years. Most of those cars are already 25 years old, says Gaur. That's why they are being replaced by 5,150 cubic foot cars.
The other positive trend is the use of shuttle trains - trains with twice the number of cars that only move from A to B and back again. "It's very efficient," says Gaur. "The railroads are moving in this direction and it will improve efficiency."
That bodes well for farmers looking to ship crops longer distances for less money.
"By and large we have the most efficient export market in the world, although farmers may not always agree," Gaur concludes.