US logistics issues drive Gulf corn CIF and FOB values apart

Logistics issues surrounding the key trading hub of the US Gulf have forced FOB and CIF premiums for US corn to diverge, as traders factor in potential demurrage costs, market sources have told Agricensus.

With the Mississippi and some of its major tributaries heavily flooded, getting barges through to the freight terminals in New Orleans has proved difficult, which in turn has provided support to cash CIF basis values.

But for FOB loading, ocean-going vessels' delays in getting the supply to the larger vessels – coupled with fog and bad weather in the US Gulf – has seen shippers incurring additional costs which have driven FOB basis values higher.

“Shippers are having to price in potential demurrage costs,” one market source told Agricensus.

On Thursday, cash indications for CIF New Orleans barges were heard in the low 60 cents/bu over the front month CBOT futures contract for March deliveries, according to market sources.

Typically, elevator and FOB costs contribute between 5-10 cents/bu, equating to around a 70 cent premium over the March contract for FOB loading.

However, market sources put the current differential for physical FOB loading in the US Gulf at 85-90 cents/bu over the front month contract, some 25 cents/bu higher as the increased logistics costs bite.

More pressure to come?

And there could be more pressure to come, as the US has seen a surge in soybean exports on the back of weather fears for South American beans which may further stretch logistics as buyers seek supply.

Alongside that, a financial incentive that has encouraged shippers to move corn to the Pacific Northwest via railway is due to come to an end in April.

The incentive has been enough to pull the majority of Asia-bound corn volumes away from the US Gulf coast, bucking the trend seen in 2017 when the bulk of Asia’s US corn supply departed from the Gulf.

Any rebalancing of those dynamics could further accentuate the move, although sources indicated the rail concession may be extended beyond April.

Barge volumes into the US Gulf in the week ending February 24 stood at 418,480 mt, down 22% on the same period of 2017, with 264 grain barges moving down river.

Meanwhile, the number of ocean going vessels in Gulf ports in the week ending February 22 stood at 68, according to USDA data – the highest number since March 20, 2014 when it stood at 77.

“Once river operations improve it should help,” one analyst said of the situation, but pointed out there was no improvement evident yet.