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Harvest pace pushing barge rates higher

Updated: 10/18/2010 @ 4:08pm

The extraordinarily speedy pace of the U.S. fall harvest is placing significant demands on the nation's grain transportation system, driving up some barge freight rates to unprecedented levels while placing pressure on export basis.

"USDA will release weekly crop progress updates (Monday) afternoon," said Rich Balvanz with AMS Commodities in Marion, Iowa. "Traders anticipate the report will show that 70% of the corn has been harvested and 80-85% of the soybeans have been combined, in one of the fastest harvest seasons on record."

The amount of grain to be handled is huge, with USDA anticipating that U.S. farmers will raise their largest soybean crop ever (3.41 billion bushels), and third-largest corn crop (12.7 billion bushels) in history.

"Continued dry weather and warmer-than-average October temperatures have contributed to the accelerated pace of harvest activity," said an Oct. 14 USDA grain transportation report. "This steady pace has increased demand for barge service. Barge rates for the northern portion of the Upper Mississippi River have increased significantly over the last two weeks."

In fact, barge freight rates from Minneapolis-St. Paul to export points in the New Orleans area have broken record highs set in November of 2008 and currently stand at more than $44.51 per ton, which is a corn-equivalent of $1.13 per bushel.

Even so, the movement of U.S. grain by barge totaled 604,492 tons last week, which was 18% more than the previous week, and 22% higher than the volume seen during the same period of last year.

U.S. railroads also originated 24,969 carloads of grain during the week, up 8% from the previous week, and up 11% from 2009. Average spot non-shuttle secondary railcar bids/offers soared to $500 above tariff, up $56 on the week.

In addition to rapid harvest, and good market prices -- which recently hit a two-year high for corn -- active export trade has also drawn large quantites of interior grain to the Gulf.

The USDA said, over the past reporting-week, "48 ocean-going grain vessels were loaded in the U.S. Gulf and 70 vessels are expected to be loaded within the next 10 days."

Consequently, Maritime Research's Grain Freight Index, a widely-watched measure of the general cost of transporting grain on the world's high seas, gained on the week; climbing from 555.2 to 569.2.

But with transportation costs running high, Gulf grain merchants have recently experienced a squeeze on their operating-margins, a squeeze which has prompted many to slash cash grain basis, in response.

CIF basis bids posted by Gulf grain terminals dropped 1-2 cents per bushel for corn and as much as 7 cents for soybeans last week. Although spot soybean basis still equals the previous three-year average, cash corn basis now languishes at a 6-cent discount to what has been normal for the Gulf in mid-October since 2007.

-By Gary Wulf, Dow Jones Newswires; gary.wulf@dowjones.com
(END) Dow Jones Newswires
October 18, 2010 12:17 ET (16:17 GMT)
Copyright (c) 2010 Dow Jones Company, Inc.

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