Shipper Moves Threaten Easy US Ag Exports

US agricultural exports could be running into trouble as moves by international shipping companies to consolidate and cut costs threatens access to world markets.

The Wall Street Journal reports that a strong greenback is making it tougher for US farmers to compete in export markets.  No news there, but the fact is being compounded by a recent restructuring of the ocean shipping industry, which will make it even more difficult (read it costly) to deliver US commodities abroad.

The WSJ went on to say that since last year, 11 large container shipping companies have entered into one of three new cooperative operating alliances affecting 90% of shipments.  The pacts are aimed at cutting costs and reducing overcapacity.

The WSJ said those producers expect the new alliances will result in fewer and larger vessels calling on a smaller number of US ports.

Larger vessels coming to fewer ports is a concern to producers who ship certain products like hay, cotton, lumber and frozen beef in steel containers.  US freight rates haven’t risen much because of the competition for their shipping business, but producers worry this will change with the new arrangement.

Commodity producers have seen this before with US railroads.

 

THE RAILROAD PATTERN

 

Back in the 1970s and ‘80s, US railroads began shutting down branch lines because they were unprofitable to maintain and operate.  They resorted to moving unit trains over long distances with no stops.

That was more efficient for them, but it left many small country elevators with no rail service.  One by one, they fell off the grid of rail service and a cheaper alternative to ship grain to terminal elevators than trucks.

Many howled that they were being driven out of business by the move.  And many did fall out.  Small, derelict elevators and tiny towns still dot the countryside as a reminder of what was.

Several startup rail lines popped up in an attempt to pick up the slack of getting grain and soybeans to terminals.  A few were mildly successful but found they couldn’t keep up the tracks and move grain and oilseeds to market in an efficient, cost-effective manner.

The result was that some elevators had to install side tracks that were large enough to supply a unit train of about 100 cars in order to get service.  A few were able to negotiate 50-car sidings under certain circumstances.

The rest moved to shipping by truck to terminals, a costlier alternative to shipping out one or two cars a week during harvest but it was the only option available.

Add in political turmoil in Washington regarding the Russians, US elections and US President Donald Trump, and it is a recipe for export difficulties ahead – unless foreign demand overcomes all of the problems, and buyers keep calling.

 

CASH CATTLE QUIET

 

After cattle traded on the livestock exchange Wednesday at an average of $134.81 per cwt on a live basis, down $3.59 from $138.40 a week earlier, cash cattle began to trade at $133.75 to $135.75 live and $215.00 dressed.

Cattle last week traded at $138 to $138.50 per cwt live on Wednesday, but the volume came at $138, down $2 to $3.50.  Thursday, more traded down to $136.  Dressed-basis trade was down $9 to $10 at $220.

The USDA’s choice cutout Wednesday was down $1.71 per cwt at $248.17, while select was off $2.46 at $221.93.  The choice/select spread widened to $26.24 from $25.49 with 124 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Tuesday was $142.12 per cwt, down $0.08.  This compares with Wednesday’s May settlement at $141.97, up $1.02.