of the U.S. Grain Export Flows
Bi-Weekly bulletin May 22, 1966
& Gary Warkentine,
Policy Branch of Agriculture and Agri-Food Canada
The U.S. has over 350 million acres of arable land cropped to grains and oilseeds. Agricultural production stretches throughout the interior and across a variety of geographic areas and climates. This enables the production of a wide variety of crops. There are four main growing regions in the United States: (1) the Midwest, (2) the Great Plains, (3) the Pacific Northwest, and (4) the South Atlantic/Southeast.
Agricultural production is dominated by corn (over 60%), soybeans (under 20%) and wheat (under 20%). In 1994-95, production of the major grains and oilseeds totalled approximate 16.2 billion bushels, of which corn accounted for 62%, soybeans 16% and wheat 14%. The U.S. produces five major types of wheat: (1) Hard Red Winter, (2) Soft Red Winter, (3) Hard Red Spring, (4) Durum, and (5) White Winter Wheat.
In 1994-95, the bulk of wheat production was winter wheat grown in the Southern Great Plains; hard red wheat (42%) in the western part of this region and soft red (19%) in the eastern part of this region. Spring wheat (19%) and durum wheat (4%) production dominates the Northem Great Plains region while the Pacific Northwest area produces white winter wheat (13%). The South Atlantic/Southeast area produces some limited quantities of soft red winter wheat. California also produces some desert durum and hard red winter wheat.
The U.S. exports, on average, about 56 % of total wheat production Trough numerous port facilities that encircle the U.S. coastline in a U-shaped pattern from the Pacific Northwest to the Gulf of Mexico and up the Atlantic to the Great Lakes and St. Lawrence River.
The grain industry essentially operates in an open market structure with multiple sellers for all agricultural commodities. There are two types of grain companies: cooperatives and private grain companies. Cooperatives have a market share of roughly one-third of the country elevators, with the largest two being Harvest States and Farmland Industries Inc. The remaining market share is occupied by large commercial companies, with the largest being Cargill, Archer Daniels Midland, Continental and Con Agra, and other independents. The five largest wheat export handlers are Cargill, Farmland Industries, Continental, Harvest States and Con Agra.
Grain companies are all independently responsible for their own sales, transportation and marketing arrangements. The price offered to producers upon delivery is based upon distance to the point of consumption, whether export or domestic, and market prices. U.S. grain companies make extensive use of futures markets at Chicago (Soft Red Winter), Kansas City (Hard Red Winter) and Minneapolis (Hard Red Spring and White Winter) to determine prices.
Producers deliver wheat, primarily by truck, to the country elevators. The U.S. has a total of 11,090 elevators including country, river and terminal elevators, with the number of country elevators currently estimated at 3,480. In some areas, however, country elevators handle little or no wheat as corn and soybeans dominate.
Recent years have seen a consolidation of elevators and upgrading. This is an attempt to minimize some of the current over-capacity and encourage volume-based transportation such as unit trains. Producers have on-farm storage capacity for about 1.3 times the annual harvest.
Country and inland terminal elevators take ownership of the wheat upon delivery. The producer receives payment, in full or through a variety of contract arrangements. The typical elevator does a high proportion of cleaning and will often store wheat until sufficient tonnage is accumulated for unit trains or other volume based transportation arrangements. In Hard Red Winter and Hard Red Spring wheat growing areas, about 35 to 40 % of grain moves by unit train to the Texas Gulf and the Pacific Northwest, respectively.
There are three modes of transportation in the U.S. system: barge, rail and truck. In general, rail and barge-dominate export movements, and rail and truck dominate domestic movements. In 1994-95, about 58 % of total wheat destined for export was transported to port by rail and 34 % by barge. Truck movements accounted for the remaining eight %, mostly limited to short haul distances of 500 miles and less, especially near terminal and port facilities.
The U.S. has a vast rail network of 113,000 miles, servicing all the major wheat production regions and grain elevators. In general, only about 30 % of the total hopper car availability is used for grains, with the remainder used by other bulk commodities.
The U.S. transportation system operates in a largely deregulated environment, although the government retains considerable authority to regulate rail rates and operating practices. For example, the Surface Transportation Board, successor to the Interstate Commerce Commission, recently regulated certain coal rates which were deemed to be too high. If a shipper feels his rates are in excess, he must prove that the carrier has market dominance and that the rates exceed the variable cost ratios set by the Government. This is, however, a very complicated and expensive procedure.
Grain companies are directly responsible for negotiating with barge or trucking companies for availability and price. Availability can be negotiated in a number of public venues or in advance through contractual arrangements. Although some rail prices are still negotiated in confidential contracts, much U.S. grain now moves under tariff rates. For example, the Burlington-Northern-Santa Fe railroad has a Certificate of Transportation program with a published, readily available Posted rate" which is the actual cost of transportation.
Rail rates are based on cost of service and demand factors. Routes that can be serviced by rail and barge generally offer lower rates, due to competition and additional volume from other commodities. Rail cycle times to export position average 20 days over a total of about 1,500 miles.
In areas with direct water access, rail and waterway systems aggressively compete for market share. In areas without water access or direct competition from other modes or commodities, notably the northern Great Plains states, rail transportation dominates. These routes generally face higher transportation costs due to lower volumes and waterway limitations. But, as wheat moves from the area of production and towards coastal export position, the costs normally decline due to volume related incentives such as unit trains and barge tows.
There are three major waterway systems containing over 25,000 miles of inland and inter-coastal navigable channels:
(1) the Columbia and Snake rivers in the Pacific Northwest,
(2) the Mississippi, Illinois, Missouri and Ohio river systems leading into the Gulf of Mexico, and
(3) the St. Lawrence Seaway and Great Lakes in the upper Midwest.
On these waterway systems, grain traffic accounts for over 55 % of total traffic. In 1994, wheat accounted for 12.4 % of total traffic, cam 31.7 % and soybeans 17 %. On the Mississippi and Snake systems, agricultural commodities must compete for available space. On the Great Lakes/St. Lawrence system, wheat is the dominant haul eastward and raw minerals dominate westward activity. In some areas, agricultural commodities also compete heavily with each other. This is especially notable on the Mississippi system where corn and soybeans dominate agricultural barge movements.
The average barge moving along the Mississippi River systems holds about 1,270/1,360 tonnes. In the upper Mississippi rivers, locks are the limiting factor and barge tows of 15 for a total of about 20,000 tonnes are common. Below St. Louis, MO, there are no locks and tows of 30 or more barges for a total of about 40,000 tonnes are common.
In the Snake/Columbia River system, barges hold about 3,175 tonnes with a total barge tow of about 12,700 to 19,000 tonnes. In the Great Lakes/St. Lawrence Seaway, laker freight carriers are used to transport the grain and volumes range from about 25~000 to 29~000 tonnes.
In the lower Mississippi and Snake river areas, barge activity dominates over all other modes of agricultural transportation. Barge rates are negotiated between parties by telephone or open barge freight call sessions. Contract temms are specified on the basis of demand factors according to benchmark location rates (Tariff No.7) and minimum guidelines.
Inland Terming and Port Elevators
Wheat is moved from the country elevator system to one of over 300 inland terminal elevators for domestic distribution or directly to one of 54 port elevators for overseas export. At the inland terminal or river elevators, wheat is marshalled into higher volume movements, cleaned in some cases, and loaded into unit trains or by barge directly to the end user, terminal or port elevator.
The volume of wheat moving through inland terminal elevators is in a long term decline. About 30 % of wheat flows through inland terminals with the remainder going directly to river and port elevators.
There are five main export locations: (1) Gulf of Mexico - Louisiana (Center Gulf), (2) Gulf of Mexico - Texas (Texas Gulf),
(3) Pacific Northwest, (4) Great Lakes/St. Lawrence, and (5) the Atlantic.
The Center Gulf and Texas Gulf dominate grain exports, although wheat exports are roughly split between the Pacific Northwest and the Gulf of Mexico ports. In 1994-95, the Gulf ports handled about 45 % of wheat exports, mainly soft red and hard red winter wheat. In comparison, the Pacific Northwest handled about 47 % of wheat exports, mainly white winter and hard red spring wheat in 1994-95. The Great Lakes/St. Lawrence also handle primarily hard red spring wheat and durum wheat exports, and only about six % of totalwheatexportsinl994-95. The Atlantic ports handled only about two % of total wheat exports.
Terminals receive, unload, store and reload grain for overseas shipment. The U.S. has a total temminal capacity of about 195 Mt with a 13:1 ratio between country and inland terminal elevator capacity. The Gulf of Mexico dominates with a combined Texas Gulf (40 Mt) and Center Gulf (75 Mt) capacity of 115 Mt. The average Gulf port terminal has a storage capacity of 50,000-100,000 tonnes. The Pacific Northwest has a capacity of 33 Mt. the Atlantic 26 Mt and the Great Lakes about 18 Mt.
Rail cars are unloaded at an average of 500-600 tonnes per hour and barges can unload an average 700-900 tonnes per hour. Some of the more advanced, higher throughput facilities have an average turnover of 14-18 times per year, and the average turnover of the older facilities is six to nine times. Wheat is sold on specification, and can be cleaned in country elevators, inland terminal elevators and export elevators if required.
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Revised: January 09, 2005