US rail truck discounts ‘not stimulating’ export demand for corn

Discounts being offered by rail operators in the US are not hefty enough to encourage farmers to release corn from storage and ship it out of the United States, trading sources said Tuesday.

“Railways are offering a discount, which makes the export price more competitive,” one Asia-based source said of the situation, but indicated that the size of the US corn crop meant that the discount is unlikely to be available for long.

“The railways will look at the size of the corn program and likely remove that discount,” the source continued.

Within the US, trading sources confirmed that discounts were available for corn train movement, but that they are not deep enough to incentivise the movement of corn to rail export locations such as the Pacific Northwest, particularly with a carry market structure enabling farmers to hold corn in their bins or even leave it in the field.

“The trains are not pricing at a premium as they would normally do,” a US-based source said, “but the discounts are not stimulating the export demand.”

Currently discounts were heard $100 to $200 off, equating to approximately 5 cents/bu, according to the source. That compares with premiums that have been as high as $500 to $2000, or 10 to 40 cent/bu.

According to data from the USDA, in the week ending November 15, 4,903 rail cars arrived at the Pacific rail head – the busiest and biggest region for grain rail freight, according to the data. That is almost half the number of rail deliveries seen in the same week of 2016, when it reached 7,900.

Over the course of the harvest period, October and early November 2016, 55,406 trains arrived at the Pacific Northwest, versus 43,965 in the same period of 2017.

The USDA also publishes grain transport cost indicators, which show that rail freight rates for secondary shuttles – essentially grain hoppers – have been as low as a $244 discount to the published tariff in the week ending November 8, and averaged a discount of $156 through November to date.

Over the same period of 2016, secondary shuttles averaged a 50 cent discount to the published tariff, boasting a premium of up to $12 for most of November before dipping to a $30 discount.

Corn futures contracts are in carry out as far as July 2019, with the difference between the front month December 2017 contract, currently trading around $3.37/bu, and the July 2018 contract standing at around 30 cents/bu, or just under $12/mt. 

Cash prices for the Pacific Northwest were heard at a 90 to 95 point premium to the front month contract, equating to around $133.25/mt.