The supply of grains in this 2014/15 US harvest will be plentiful, as it has not been seen for a long time. After two consecutive cycles of crop losses and some recovery in 2013/14, the robust harvest this season led to believe that the growing demand would be fully met. What was the surprise, then, when buyers began to receive goods late, which disturbed the market and took soybean, bran and corn prices to levels not recorded since July, when planting had not even ended.
The problems began in October, when unseasonal rains delayed the start of the harvest in the east of the US production belt, close to the country's agro-industrial hub, which is home to oilseed farms and processors. But the biggest obstacle came from the logistics area. The record volume of grain collided on American railroads with an equally exceptional volume of oil and derivatives being produced from shale reserves.
According to the American Association of Railroads (AAR), October was the best month in the history of US intermodal rail traffic. In a broader analysis, the numbers are also significant. From the beginning of the year until November 22, the number of wagons in motion on the country's railways grew 3,4% in the annual comparison, according to the AAR. Grain production alone occupied 13,5% more wagons, compared to the same period in 2013, which was still not enough to give rise to the record harvest. Only the soybean harvest should exceed the previous one by 17,8%, at 107,7 million tons, indicates a forecast by the US Department of Agriculture (USDA).
Many railway companies were not prepared for such an increase in demand. Some had even reduced the number of wagons after the difficulties registered at the beginning of the year, when snowfalls interrupted traffic on the railways. With the sudden change in reality, some companies decided to improvise and increase the number of wagons per locomotive, which made transport slower.
In its quarterly balance sheet, Union Pacific, a large US rail company that operates in the Midwest, said that the average speed of trains already in the last quarter, before the harvest, was 38,3 kilometers per hour, 10% more slower than in the same period of 2013.
Slowness strangled the transport system. “Operators gave preference to contracting freight from the oil industries to transporting grains because the cash flow in contracting oil is constant, and not seasonal, as with grains”, explains Stefan Tomkiw, vice president of the derivatives desk for Latin America from the consulting firm Jefferies Bache, in New York.
However, the trading companies that needed to fulfill the deliveries foreseen in contracts did not accept to watch ships. Many agreed to pay higher prices. As a result, bran rail freight from some areas of the American Midwest to the Gulf of Mexico reached up to R$ 45 per ton, an increase of about 80% compared to normal for this time of year, according to Camilo Motter, economist from Granoeste Corretora, from Ponta Grossa (PR).
Between November 10th and 14th, soybean meal was even traded in American ports with a premium of US$ 75 per short ton (930 kilos) over quotations for lots delivered to the Chicago Stock Exchange in December, when normally the value tends to be equal to the contract, or even less. Even so, contracting rail freight did not guarantee on-time delivery.
Farms and processors on the US east coast, which had contracted robust volumes of soybeans and corn for feed production, had to resort to stocks from the past crop, which were already dry. According to the last USDA calculation, at the beginning of the current cycle, on October 1st, there were only 2,5 million tons of soybeans from the 2013/14 crop stored in the country, the lowest volume since 1973.
Michael Vosburg, Fargo Forum Newspaper/AP
The rush for volumes of soy and bran available close to consumption centers generated euphoria in Chicago. Second position soybean meal contracts recorded gains of 40% last month, and from October to Wednesday, the 26th, they accumulated a 26% increase. Bran prices influenced soy papers, which rose 13% in the same period.
Some buyers also decided to settle with road companies and kept duplicate purchases to guarantee some receipt within the schedule. “The idea was to get paid as soon as possible for either one of them,” says Tomkiw. Exporters, on the other hand, with strict contracts for the delivery of bran to the foreign market, canceled deals with soybeans from the United States and resorted to international supply, mainly from South America, where the value of the grain at ports is more competitive. In Brazil, bran was even traded at ports with a discount of US$ 15.
There is no exact number indicating how much soybean meal exporters purchased outside the US to replace canceled purchases domestically. But it is possible to perceive points outside the curve in the movements of American and South American exports.
According to the USDA, between October 2nd and November 6th, export contracts for 767 million tons of soybean meal were canceled. The movement was more intense between October 24th and November 6th, when 558,8 million tons were cancelled. Rumors circulate in the market that at least eight freighters left South America bound for American ports. However, there are no details about the type of product (whether bran or just soy beans), volume, or even origin.
In Brazil, no bran shipments to the USA were officially registered in October. However, Brazilian shipments of the product abroad grew by 8,7% compared to the same month last year, although they fell by 3,8% compared to September, according to data from the Foreign Trade Secretariat (Secex).
According to Motter, from Granoeste Corretora, many international buyers, mainly from Europe, have sought the Brazilian market to buy bran. He also does not rule out the possibility that any deals closed with the US last month will appear on the November scale.
There are also no official records of bran shipments from Argentina to the American market, but movements in the country's ports also indicate stronger demand. Between November 6th and 20th, ships that docked at Argentine ports had already been loaded with 3,075 million tons of the commodity, more than triple the same period in 2013, according to the Rosario Stock Exchange.
Despite the strong turbulence caused in the market, the logistical bottleneck for the flow of grains in the US should not last longer, in the opinion of analysts. According to Pedro Dejneka, partner-director of consultancy AGR Brasil, headquartered in Chicago, there are still delays in transport, “but the situation is yet to be resolved”.
For Tomkiw, from Jefferies Bache, some railroad companies are noticing that trading companies are willing to pay more for freight by putting grain back into the flow, such as CSX, which manages railroads in the eastern US. In the final account, however, the tendency is for trading companies to pass on the higher cost to producers. “They will pay less to the producer, and his income will decrease”. But Motter, from Granoeste, points out that the arctic air mass that hangs over the country is already a point of attention, since snowfalls can interrupt the rail flow in the country, as it happened at the beginning of the year.
Source: Valor Econômico
By Camila Souza Ramos | From Sao Paulo
