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Market Matters Blog           07/25 12:28
Freight Costs Rise as Large Crops Loom 
US New Crop HRW Protein Disappointing 
Volatile Markets Require a Long-Term View
Cash Market Moves -- Weaker Cash Price Not Helping Basis to Rally 
SOLAS Update; OCEMA Members to Accept Marine Terminal Weights
DTN's Brexit Vote Coverage
SOLAS Deadline Nears; Still No Clear Picture on Implementation
Barge/Secondary Rail Freight Costs Moving Higher
Happy New (Marketing) Year, US Winter Wheat!
Burning Question: When Will Old Crop Move?

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Freight Costs Rise as Large Crops Loom 

   "Bin-buster" will likely be the one word to describe the 2016 harvest. 
Starting with the winter wheat crop, yields so far have been reported to be 
anywhere from 50 bushels per acre to as high as 85 bpa or higher in some areas. 
USDA recently revised its winter wheat yield estimate to 50.5 bpa, which would 
be a new all-time high vs. the final yield in 2015. 

   Tim Luken, manager at Oahe Grain in Onida, South Dakota, told me it didn't 
take long for his winter wheat bins at the elevator to fill up. Currently, he 
said, "Anything that is coming through the door at this time is cash and with 
bins being full in the country, cash is the only game in town at this time."

   "Winter wheat yields in western South Dakota have been as good as expected," 
said Jerry Cope, who does the grain marketing for Dakota Mill & Grain, Inc. in 
Rapid City, South Dakota. "I am guessing our average is in the high 50s bpa. 
Harvest has outrun either total farm capacity or allotted capacity at farm 
bins. Grain delivered to the elevator has been contracted bushels, first, and 
excess over storage, second. In turn we have, or will be, shipping more. For 
now wheat is following soybean weather and corn's export demand and will either 
benefit on the cash side or suffer if freight values go higher." 

   Moving on to the 2016 corn crop, the most recent USDA estimate is that 
yields will be at 168 bpa vs. 2015 final at 168.4. However, many in the trade 
feel USDA will raise that estimate again for 2016, given the excellent shape 
reported for corn all summer. As of July 17, the corn crop was rated at 76% 
good to excellent vs. 69% the same time in 2015.

   Here's the problem: 2015 corn is still left in the bins. In the June 30 USDA 
Grain Stocks report, 2.47 billion bushels of corn remained stored on farms. 
This means corn has to start moving in order to make room for all the 2016 
crops, not just corn and winter wheat. 

   As far as the corn reported stored on farms in the June 30 report, some of 
that has moved from farm storage, but likely not enough to make a huge dent in 
the pile thanks to prices diving since June. On June 15, the DTN Cash Index was 
at $3.92; one week later on June 22, the cash index was 3.57; on July 1, the 
cash index was $3.23 and as of Friday, July 22, the cash average was at $3.06. 
As the price dropped, farmers ran away from the market. To make matters a 
little worse, freight costs are on the rise.

   At the end of June, secondary shuttle (shuttles no longer needed) freight 
costs were at $50/$150 per car (over tariff costs) for July, August was at 
$0/100 per car, September was at $0/$200 per car and October-December was at 
$450/$650 per car. On July 19, freight was quoted at $700/$900 for the rest of 
July split, August was at $400, September was at $300/$750, October was at 
$1,000/$2000 per car and full October, November, December was at $550/$750 per 
car.

   To put it in perspective, the shuttle tariff rate per car (plus fuel 
mileage) cost for corn delivered from Minneapolis to Portland, Oregon, is about 
$1.24 per car. If you want to buy shuttle cars in the secondary freight market 
for new crop, the added cost on top of the tariff cost is about 50 cents per 
bushel and that cost, in the end, may end up cutting into the price paid to a 
farmer; not a good thing given how much the cash corn price has dropped in the 
past two months.

   New-crop shuttle freight costs are obviously on the rise given the 
expectations for a very large corn new crop along with soybeans and wheat new 
crop that will have to ship. Nearby costs have been moving higher due to demand 
and also because shuttles are not moving quickly enough to destination and back 
again to be reloaded. A shuttle loader in eastern North Dakota told me he has 
three shuttles to move in the next few weeks, but "shuttles have slowed down 
causing delays." The BNSF considers "normal" trips per month for shuttles 
delivered to the PNW at 2.5 TPM (turns per month). In their weekly rail service 
update, the BNSF reported that for the week ending July 16, shuttle TPM were at 
3.0. 

   Dakota Mill and Grain, which is serviced by the Rapid City, Pierre & Eastern 
Railroad (RCPE), doesn't have a secondary freight market but is affected by 
other railroads that do, as well as rising barge freight. "We watch BN freight 
and notice bids are strong through the end of the year," Cope told DTN. "You 
are right, nearby freight values have jumped. From what we hear, there is fall 
demand and indications of a strong corn export program that will keep shuttle 
resale values well supported. We don't follow barge freight as close, but it is 
reasonable that stronger rail demand creates barge demand. The railroads are 
leaving the door open for rate increases after November and if they follow 
their usual pattern, would not be surprised to see an attempt for $200-plus per 
car (5 -- 6 cents per bushel)." 

   Barge freight on the Mississippi River and its tributaries reached all-time 
highs in the past month. USDA in its June 23 Grain Transportation report said, 
"Current grain barge rates have increased to the highest levels since November 
2015, based on increased demand from higher shipments. As of June 21, St. Louis 
to New Orleans grain barge rates were 300 percent of tariff ($11.97 per ton), a 
40% increase compared to last week, and 18% above the five-year average. Rates 
at other major barge origins had 25% to 51% weekly increases and were 10% to 
27% above the three-year average. The largest weekly increase for export-barged 
grain was at origins on the Ohio River. Corn shipments have been up as the last 
four weeks of corn inspections at the Mississippi Gulf were 120% of last year 
and 151% of the three-year average. Continued concerns over tight corn supplies 
in South America, especially Brazil, may be driving the current increase in 
corn exports and may be causing the higher barge rates."

   Since that report, costs have come down some, but remain well above average 
for this time of year. For example, barge freight on the Illinois River for the 
week ending July 19 was 9% higher than last week, 12% higher than last year at 
this time and 27% higher than the three-year average. 

   A northeast Illinois grain merchant told me that he has quite a bit of corn 
to move to be shipped to the Gulf via the Illinois River. He agreed that high 
freight costs are not a good thing for the farmer with the lower prices we are 
currently seeing. He added that he has heard talk of bulk ocean vessel freight 
moving higher as well.

   That means that the piece of pie going to the farmer will just keep getting 
smaller.

   Mary Kennedy can be reached at mary.kennedy@dtn.com 

   Follow Mary Kennedy on Twitter @MaryCKenn

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US New Crop HRW Protein Disappointing 

   As the winter wheat harvest moves north through South Dakota and into North 
Dakota and Montana, millers hope those states will harvest higher-protein wheat 
than what was harvested in Southern Plains states this year.

   U.S. Wheat Associates reported Friday that as of July 14, "The average 
protein of 11.2%, down a full percent from last year, did not change this week 
and continues to be the major topic of discussion of producers and within the 
trade. The relatively low-protein values are a result of the exceptional yields 
in the 2016 crop, much higher yields than growers could have anticipated when 
applying fertilizer." Samples tested were from Texas, Oklahoma and Kansas.

   Tim Luken, manager at Oahe Grain in Onida, South Dakota, told me harvest in 
his area as of July 13 was 50% to 60% finished. He told me that protein levels 
have been running between 11.2% up to 11.8%. "If the industry is going to think 
South Dakota is going to have protein to save the day, I really don't think 
it's going to happen," he said. He added that over the past weekend, the 
protein backed off to 11.3% on the wheat he took in. He said he was still 
hoping to see some better protein, but likely not much 12% and higher.

   Several major factors influence the protein content in wheat. The Alberta 
Agriculture and Rural Development staff noted in a study that those factors 
include the timing and amount of growing season precipitation; the temperature 
and heat (degree days) during the growing season; soil nitrogen reserve levels; 
and applied nitrogen fertilizer pre-plant, at seeding and in-crop applications. 

   However, weather during the growing season is the overriding factor 
affecting protein content of wheat. It controls two of the major influences on 
protein content: the timing and amount of growing season precipitation and the 
degree days. Because there wasn't enough heat and dry weather this growing 
season, the wet weather gave a boost to the crop yield, but the protein content 
suffered.

   WHAT HAPPENS BELOW 12% PROTEIN AVERAGE?

   It's no secret that flour mills' flavor of choice is 12% protein when it 
comes to making flour. For example, while flour mills make a 13% protein flour, 
the most common is a mid-mix, 12% protein flour. One thing to note is that 1% 
of the wheat protein is lost in the flour-making process. 

   The higher the protein content, the harder and stronger the flour and the 
more it will produce crusty or chewy breads. The lower the protein, the softer 
the flour, which is better for cakes, cookies and pie crusts. According to a 
flour miller, the increased protein binds to the flour to entrap carbon dioxide 
released by the yeast fermentation process, resulting in a stronger rise.

   A miller told me that as far as the 13% protein flour, it will likely be 
made with all spring wheat this year if the HRW new-crop average remains below 
12%. The 12% protein flour will likely need to blend 75% to 80% spring wheat 
under the same scenario.

   That means flour could get expensive to make. Spring wheat September futures 
closed at $4.96 3/4 on July 15, and Kansas City September futures (KCU) closed 
at $4.13 3/4. The value of the spot winter wheat basis between a flat 12% 
protein and ords (ordinary protein levels, below 11%) was a 75 cent spread 
Friday. Spot ords traded at -25KCU versus 12% protein at +50KCU and versus 13% 
protein at +110KCU.

   Dan Maltby, a former HRW buyer in Kansas City and current consultant for 
Risk Management Group Minneapolis, told me that, "As far as flour/wheat protein 
concerns, ultimately, I believe the miller and the baker will work out a 
compromise that 11.5% pro HRW will make an 'acceptable product.' Big old-crop 
stocks, widely believed to be 12% pro will help this year's crop, widely 
believed to barely average 11% pro. However, negotiations are still ongoing, as 
witnessed by continuing drop in posted 12 pro HRW milling values."

   "Of course," added Maltby, "spring wheat protein content is still a mystery. 
Big rains argue for lower protein content, but high temps as the head fills 
will offset that to a degree, although to what degree, I'm not sure. Also 
old-crop stocks of spring wheat do exist. The four-state region of Minnesota, 
North Dakota, Montana and South Dakota had 163 million bushels ON FARM as of 
June 1." 

   As a reminder, the average old-crop spring wheat protein for 2015-16 was at 
14.2%, and the average of hard red winter wheat old-crop protein was 12.3%.

   LOWER PROTEIN MOVES TO FEED CHANNELS

   Informa Economics pointed out that the enormity of U.S. wheat supplies has 
weighed on prices, both cash and futures, for several months. "Recent data 
points to the Texas Triangle HRW/corn spot price ratio being the weakest it has 
been since the summer of 2012. The weakness in wheat cash prices, relative to 
corn, has induced greater-than-average wheat feeding in the Central Plains," 
Informa stated in recent comments.

   While USDA increased its feed and residual forecast 100 million bushels to 
300 million bushels, Informa Economics increased its U.S. feed and residual use 
forecast from 260 million bushels to 340 million, mostly for HRW, whose 
production was increased 55 million bushels from Informa's previous forecast. 
Informa reported that they increased feed and residual for several reasons. 
"Record yields in the HRW Wheat Belt and large stocks have weighed on prices, 
inducing heavier-than-normal feeding rates. Cash wheat is cheaper than corn in 
some areas in the HRW Wheat Belt, and the Chicago wheat-corn and Kansas City 
wheat-Chicago corn spreads are weak relative to history. Additionally, export 
demand for corn recently has popped."

   So, if we can't bake it, we'll have to feed it, and a cheap feed it will be 
compared to other protein feeds. As yields continue to be near record this crop 
year, the supply of wheat in the U.S. can be classified as a "bin buster." The 
latest USDA estimate for the winter wheat yield was forecast at 53.9 bushels 
per acre, up 3.4 bushels from USDA's June forecast. If realized, that would be 
a record. The current forecast compares to the previous record at 47.8 bushels 
per acre in 1999. And that is just the winter wheat harvest; we still have a 
spring wheat crop to cut.

   Mary Kennedy can be reached at mary.kennedy@dtn.com 

   Follow Mary Kennedy on Twitter @MaryCKenn

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Volatile Markets Require a Long-Term View

   The last couple weeks have been an excellent example of volatility, not only 
in commodity markets, but also in financial markets domestically and globally. 
The turmoil surrounding the Brexit situation in the financial and stock markets 
is a primary example as prices initially plunged but have now bounced back 
above pre-Brexit highs. 

   In the two days following Brexit, the Dow Jones Index fell nearly 900 points 
with some concerned that aggressive follow-through liquidation would lead to a 
widespread, global recession. However, fast forward just two weeks and the Dow 
Jones index has regained all of the losses and has moved to 14-month highs well 
above 18,000 points with Monday trading at 18,256 points. This is well over a 
1,100 point rally from the post-Brexit lows.

   It is premature to say that we have all the ramifications of the United 
Kingdom leaving the European Union in hand, as realistically the only thing 
that is complete is the initial deciding vote. Much more volatility is likely 
to be seen in the months and years ahead as each side charts its course. 

   In commodity markets, this is an important lesson to take to heart. The most 
publicized and talked about events that touch a market may not always be the 
"sky is falling" type of tragedies they are made out to be. Take for example 
the lean hog market. Over the last two months it has shown both sides of this 
equation as nearby contracts rallied sharply during the last two weeks of May 
and first half of June. This added $9 per cwt to July contracts. Expectations 
for extreme firmness in cash prices and tighter supplies heading into the 
summer added fuel to the already red-hot fire; the price increases seemed 
unstoppable -- until the second week in June.

   However, over the last month, the total opposite action is taking place, 
with sharp and steady liquidation not only quickly eroding front-month July 
futures prices to near the May lows, but the trade also aggressively shed open 
interest as commercial and investment traders alike bailed on the market which 
just a month ago held so much promise and optimism.

   There are fundamental and technical factors involved in the lean hog market 
which may continue to drive additional volatility, but it is good to keep in 
mind that the more volatile the market, the more vital to keep a long-term view 
of market shifts, and try not to get caught up in the daily and intra-day 
action that can add so much emotion to the complex. 

    

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Cash Market Moves -- Weaker Cash Price Not Helping Basis to Rally 

   Weaker corn and soybean cash prices are not helping basis to rally as one 
would expect. And the continued outlook for large corn and soybean crops this 
growing season is not helping.

   Soybean basis was trading near historical lows at the end of May 2016, as 
increasing cash prices had kept basis from moving higher. On May 1, the DTN 
Cash Index was $9.57 and on June 29, pre-USDA report day, the DTN Cash Index 
was $10.79. As weather conditions improved, the cash price came under pressure 
and the DTN Cash Index as of July 8 was at $10.24. For the week ending July 8, 
the July soybean futures contract lost 79 cents, even after rallying 35 1/2 
cents on Friday, and November futures lost 79 3/4 cents. 

   Some soybean processors and exporters found themselves in need of nearby 
spot supplies and paid up by pushing basis levels. But even with tight nearby 
supplies, basis remains near five-year lows. After the steep losses since July 
1, any farmers with cash beans left have no interest in selling anymore. 
Farmers who have old crop left, and likely not huge quantities, may be waiting 
not just for higher prices but also to see how their new-crop beans make it 
through the next month. One thing to remember is that new-crop soybean yields 
aren't really determined until August and September, with timely rains and warm 
conditions key to their success.

   A northern Illinois shipper told me he believes farmers are mostly "sold 
out" of cash beans. "The commercial still has plenty of ownership yet from 
cheap basis values they bought out of storage on the board run-up April to 
mid-June," he added. "Exports seem to be very good at the Gulf, so most are 
holding out for higher basis vs. the July or Aug bean futures."

   Corn basis has also been under pressure, which is mainly due to plenty of 
supplies on hand, along with competition from cheaper feed wheat prices. In 
fact, soymeal, DDGs and other corn by-products prices may find themselves 
facing lower prices as feed wheat supplies grow. While demand for corn has been 
strong, the cash corn price has been victimized by a large new crop that so far 
is coming along quite nicely. On May 1, the DTN Cash Index was $3.57 and on 
June 29, the DTN Cash Index was at $3.39 and continues to fall. As of July 8, 
the DTN Cash Index was at $3.21.

   At the end of the pre-4th of July weekend, September corn futures lost 29 
cents, but if you add the prior week, the two-week losses in the September 
futures came to 82 3/4 cents. The December corn contract was down 27 1/4 cents 
with its two-week losses at 81 3/4 cents. Futures for the week ending July 8 
lost another 5 cents, extending corn's losing streak. As for basis, it hasn't 
moved much either way on average during that same timeframe.

   It hasn't helped corn's cause that USDA estimated that U.S. farmers will 
plant 94.1 million acres and estimated June 1 U.S. corn stocks at 4,722 million 
bushels, which would be the fifth largest on record if realized. As far as the 
large expected acreage, the final outcome of that will depend upon the weather. 
So far, there doesn't seem to be talk of a drought situation and we still have 
to get through July, which can be a mixed bag of storms, excessive heat and 
dryness. However, as it looks right now, there is a pretty good sized new corn 
crop in the making, barring any serious weather events.

   DTN Senior Ag Meteorologist Bryce Anderson said, "La Nina conditions (cooler 
than normal equator-region Pacific, jet stream pattern featuring widespread 
high pressure over the central U.S.) have not developed yet. Both the water 
temperatures and the barometric indicators are at neutral. I don't think we'll 
see full-on La Nina indications until September. There is still a fair amount 
of El Nino flavor to this feature, and the evolution is acting very similar to 
the year 1998, which followed a very strong El Nino year 1997. 1998 was a very 
good year for corn/soy production."

   Mary Kennedy can be reached at mary.kennedy@dtn.com 

   Follow her on Twitter @MaryCKenn

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SOLAS Update; OCEMA Members to Accept Marine Terminal Weights

   There have been some new developments concerning Safety of Life at Sea 
(SOLAS) mandatory weight reporting since my blog titled "SOLAS Deadline Nears; 
Still No Clear Picture on Implementation" was posted on June 20. 
https://goo.gl/rbQNwy 

   On that day, the Agriculture Transportation Coalition (AgTC) put out a press 
release saying, "The Ocean Carrier Equipment Management Association (OCEMA) 
officially announced that their member ocean carriers will accept the marine 
terminal weights, so that exporters do not have to provide the combined 
cargo/container weights to the carriers. There is still work to be done, 
particularly for containers arriving at terminals without going through the 
gates, by on-dock rail." OCEMA is an association of 19 major U.S. and foreign 
flag international ocean common carriers. Here is a link to the announcement by 
OCEMA: http://goo.gl/bNa1SB 

   I asked Midwest Shippers Association (MSA) Executive Director Bruce Abbe if 
the picture was a little clearer since OCEMA's announcement. "Yes, I would say 
so," he said. "I'm guessing now that with this option being now through OCEMA 
as a noted, endorsed method that many, if not most ports and terminals will 
offer it. And for others, they had best inform anyone shipping through them 
what their policy will be. I expect there will be differing levels of adoption, 
but the trend is for many of them to provide it. And then will the carriers 
accept it? I expect most will."

   However, Abbe also said he expects many freight forwarders will not want to 
take any chances with shippers' container cargo come July 1 and many of them 
will probably try to provide some kind of VGM (verified gross mass) weight -- 
the combined weight of the cargo and the container -- reporting via whatever 
the system is the carriers will each provide.

   "Hopefully, someone or all of them will track and inform shippers/forwarders 
what systems are available at the different ports and systems," he said. "If 
terminal-weighing will be done, that's probably what should be used. But if 
not, shippers/forwarders should plug in something."

   "There was also some uncertainty when it came to on-dock rail container 
service," said Abbe. "In the case of on-dock rail, most of those containers are 
not weighed at some (not all) ports. Charleston, South Carolina, for example, 
doesn't have on-dock rail, so everything gets weighed now anyway (to meet OSHA 
requirements, has been for 25 years.) Seattle, which serves our region, has 
what some call on-dock rail by BNSF at SIG (Seattle International Gateway) but 
in fact it isn't true on-dock rail because the boxes have to be pulled off and 
put on chassis for a short run over to the terminals of choice/booking. So 
maybe they are weighed at the terminals. Hope so."

   Abbe said he recommends shippers/forwarders should provide a VGM weight, 
according to whatever the carrier makes available for their systems and that 
they tell/email the forwarder to say they are providing a VGM. He added that if 
the terminal is going to weigh and report it, they should go with that one.

   "I just don't have a good handle on how this will all be adopted and played 
out over the next few days ahead of July 1," said Abbe. "I would not advise 
shippers to just do nothing new unless they know for sure that their shipment 
is going to go through a port where the terminals will provide the VGM. In 
time, I think that is what will be the case ... what the system will adopt.

   "And the shippers/forwarders/logistics providers ought to be concerned 
enough and informed enough to make sure there is no slacking on this. Plus, 
with the International Maritime Organization (IMO) recommending 'more 
flexibility' at the beginning of VGM requirements the first three months, that 
hopefully things will go ahead without major interruptions in the U.S."    

   What will happen overseas is still very unclear, Abbe told me, because many 
countries and ports haven't given any indication yet on what their systems will 
be. "It's been a confusing mess getting here."

   Mary Kennedy can be reached at mary.kennedy@dtn.com 

   Follow her on Twitter @MaryCKenn

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DTN's Brexit Vote Coverage

    Results from the U.K's Brexit vote -- deciding whether or not it will stay 
in the European Union -- will be coming in during the overnight hours. And 
while the finality, if "Leave" carries the day, won't be seen for a number of 
years, market reaction is expected to be immediate and volatile. With that in 
mind, DTN analysts will be covering the developments in this blog overnight. 
Updates will appear in the comments section, and we invite your participation 
(questions, comments) as well. 

   DTN Market Analyst Todd Hultman will take the first shift from 7 p.m. CDT to 
midnight, when much of the news could possibly break. DTN Senior Analyst Darin 
Newsom will take over at midnight and discuss developments up through Early 
Word Grains analysis early Friday morning.

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SOLAS Deadline Nears; Still No Clear Picture on Implementation

   On July 1, the International Maritime Organization's Safety of Life at Sea 
(SOLAS) Container Weight Verification rule will take effect, requiring that 
shippers verify gross container weight -- the combined weight of the cargo and 
the container -- prior to shipping. There is still no clear picture for many 
shippers as to the "how, who or where" mechanics of this new rule. If shippers 
don't comply or are unable to comply fully, their containers will likely be 
prevented from loading aboard a ship. It could be a mess at ALL container ports 
on July 1 in places where there is still confusion.

   The Ag Transportation Coalition posted this statement on their website, 
which sums up the confusion and problems facing shippers due to the SOLAS rule: 
"Currently, the shipper is responsible to accurately report the weight of its 
cargo, but does not own, control, or maintain containers. This rule was never 
submitted to Congress, reviewed or approved by a federal agency, nor published 
in the Federal Register. There has been no input from the shipping community. 
Now shippers, steamship lines, terminal operators, and governments are 
scrambling to create best practices and implementation guidance for this new 
rule. Unless thoughtfully considered by individuals with intimate familiarity 
with the export supply chain process, this rule will create major turmoil at 
the marine terminals and a very significant impediment to U.S. exports."

   Midwest Shippers Association (MSA) Executive Director Bruce Abbe told me 
that the Port of Charleston, South Carolina, "kind of led the way in deciding 
they would offer to do the weighing for containers coming in, since they do a 
version of this anyway. At first they were going to charge a fee (something we 
all were concerned might occur everywhere)... but it was pretty nominal what 
they were talking about, if at all. So Charleston has been a bit of the hero 
port in this so far."

   On May 5, South Carolina Ports Authority (SCPA) posted a press release on 
its website stating, "Last week, the U.S. Coast Guard announced its approval 
for U.S. ports to verify the weight of containers on behalf of the shipper to 
comply with the Safety of Life at Sea (SOLAS) regulations, and will provide 
this weight to the shipper or exporter." 

   "It has been our position all along that we have employed a best practice in 
safely loading ships in our port for the last 20 years due to our weighing of 
all export containers," said Jim Newsome, SCPA president and CEO. "We applaud 
the Coast Guard for recognizing this in its recent Declaration of Equivalency 
to the International Maritime Organization on the SOLAS regulations. 

   "For many years, SCPA has weighed every export container received at its 
terminals on calibrated scales consistent with requirements in OSHA regulation 
1918.95 (b)(3). SCPA will assist its export shipper customers and the container 
shipping lines in complying with their obligations under the SOLAS regulations 
regarding verified gross mass (VGM) of containers effective July 1, 2016."

   Abbe said: "There has been movement on the issue of ... if terminals will 
let containers onto their property without a VGM files, or turn them away. 
Gradually more of them... Norfolk soon, then others, have said they now will 
allow them in. Short period of time until they have to have the VGM (I see this 
as an initial policy to deal with potential initial congestion issues.) I can't 
say if they will offer a service to weigh them, or if there will be a charge, 
or what time length they'll allow until detention fees kick in, etc. But 
gradually more ports/terminals are stepping up with things like this. There has 
been some announcements and changes later by carriers, ports, etc., so it's 
tough to track." 

   American President Lines Ltd (APL), one of the world's leading ocean 
carriers, has a dedicated SOLAS web page on their company website which 
includes tracking and updating which ports and terminals are doing what as far 
as these acceptance policies. http://goo.gl/OZ6YeO

   IMPACT ON GRAIN INDUSTRY 

   Abbe said that since nearly all grain exporters have certified scales at 
facilities they use, they should supply it themselves and not pay for the 
port/terminal to do it. "Avoid ports/terminals that have unnecessary costly 
policies to do this, or potential penalties. And be aware of which 
ports/terminals are doing what," Abbe said.

   "For many grain, soy and DDGS export container shippers, it ought to be 
relatively easy to submit a 'verified' cargo weight because ag/grain elevators 
and facilities use a certified weighing scale, already," said Abbe. 
"Identity-preserved (IP) soybean exporters like many MSA members that load bags 
or super sack totes also know the weight of their cargo now. When they load 
them at their plant, they're sure of what they load."

   Rail shippers of bulk grain, DDGS, and soy exporters to the coast where 
product is transloaded into containers will likely face some added challenges. 

   "The actual container is loaded by someone else, a logistics service 
provider," Abbe said. "So, since the shippers are to be held responsible -- but 
someone else is loading it -- I see a likely need for some amended language in 
service contracts to clarify these matters."

   Grain and other ag products shipped by containers often will see small 
weight changes for moisture that can develop while in route when going through 
rain, humid or dry conditions. Abbe told me, "I've seen no word on any standard 
margin of error or flexibility on weight differences from a posted VGM to allow 
for things like moisture or minor changes in weight while in transit from the 
shipper to the terminal. Most other countries have them. It's something we 
need." 

   Lastly, Abbe said his message to shippers is to "keep track of everything 
filed per each container and be in close contact and on the same page as their 
forwarders, and any transloaders if they use them on executing this." 

   On Thursday, June 16, Federal Maritime Commission Mario Cordero released a 
firm statement saying: "The time has come for ocean carriers to embrace the 
obvious solution to achieving compliance that Marine Terminal Operators can 
offer. Specifically, Cordero asserted the weight of export containers, as 
determined by terminal operators, can and should be classified as the Verified 
Gross Mass (VGM) of the container." Here is the link to the entire statement: 
http://goo.gl/nJpFzN

   For anyone interested or affected by SOLAS, here is link to register for a 
webcast sponsored by Logistics Management On June 30, 2016, at 2 p.m. EDT: 
https://goo.gl/xEcZnq

   Mary Kennedy can be reached at mary.kennedy@dtn.com

   Follow Mary Kennedy on Twitter @MaryCKenn

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Barge/Secondary Rail Freight Costs Moving Higher

   Barge freight and secondary rail freight costs have moved higher in the past 
week as demand is spiking due to the rise in cash grain prices. 

   "Mississippi Gulf grain inspections totaled 0.788 million metric tons, up 
33% from the previous week, and 22% above last year, due primarily to higher 
wheat and corn inspections," according to the USDA Grain Transportation Report 
for the week ended June 2.

   In the past 10 days, barge freight has seen a 50% hike in some corridors and 
a 35% to 60% hike in others for the last two weeks of June placements. 

   Since June 1, the corn cash price has increased 18 cents, according to the 
DTN Cash Index as of June 10, and the soybean cash price has jumped 97 cents. 
And this was on TOP of the rallies we saw in May. 

   For the week ending June 10, soybean futures gained 46 1/4 cents in the 
front-month July contract and 77 1/2 cents in the November contract, extending 
the streak of gains to nine weeks. This rally in soybeans is the longest in 
more than 40 years.

   The higher corn and soybean futures have inspired farmer selling, which is 
creating a demand for barges on all river segments. Demand for old-crop winter 
wheat to Brazil out of the Gulf has been steady, as well. On June 8, the middle 
of last week, Ceres Barge, LLC, reported the market was up on old and new crop 
barges "as the higher board generated a huge grain movement on almost all river 
segments. The June/July slots are getting booked up quickly. As of Friday, 
there were some higher values in various slots, mainly July." 

   New-crop barge freight has jumped at least 50% to 60% as both the soybean 
and corn new crops are so far in good condition and are on pace for a large 
harvest in the fall.

   Barges in some corridors are also being sold with "terms," which means 
shippers need to load barges and release within "free time" or face penalties. 
This is due to the fact that barge freight is higher in the coming months 
versus freight costs for June/July. Extra penalties on top of demurrage will 
discourage shippers from buying cheaper nearby freight and holding it. For 
example, freight in St. Louis corridor is 225% over tariff for June versus 475% 
in September and 550% in October. All corridors have similar differences in 
nearby freight costs versus deferred.

   The cost for new-crop secondary rail shuttles rose late last week as high as 
$1,000 per car over tariff for first-half October and $1,400 for second half. 
As of June 9, costs were at $800 for first half and $1,500 for last-half 
October. Freight for June also rose the past week with first-half June at $50 
per car and last half at $200 per car. One week ago, June was trading at 
negative numbers. 

   One thing to remember is that railroads parked locomotives -- otherwise 
known as "power" -- and furloughed workers in the past six months due to lack 
of grain movement. A BNSF worker in the Northtown yard in Minnesota told me 
there are orders to start returning power to service, and BNSF shuttle loaders 
in eastern North Dakota mentioned they expect parked shuttles to be back in 
service by harvest.

   LOWER RAIL TARIFFS WILL HELP MOVE LARGE WINTER WHEAT CROP

   It's no secret the U.S. is looking at a large crop of wheat this summer and 
early fall. The first wheat crops, hard red and soft red winter, are starting 
to come off the fields in the south and harvest will head north into July. 
Yields are expected to be near records in some areas, and USDA on Friday 
confirmed it in the June WADSE report. "Projected production for 2016/17 is up 
79 million bushels mainly on improved prospects for the hard red winter wheat 
crop in the Great Plains following excellent growing conditions throughout the 
spring months. Consequently, the winter wheat yield is forecast to be record 
high," according to the report.

   Tim Luken, manager at Oahe Grain in Onida, South Dakota, is serviced by the 
Rapid City, Pierre and Eastern (RCPE), a Class II railroad operating across 
South Dakota and southern Minnesota with portions of the railroad extending 
into Wyoming, and Nebraska and is serviced by the Canadian Pacific (CP). Luken 
told me the tariff rate at Onida "went down about 4 cents a bushel over Chicago 
and more going to Minneapolis and even south to destinations via the Union 
Pacific (UP). Since the UP has lowered their wheat rates, the CP figured out 
they better follow suit or risk losing business." 

   Luken said the "RCPE actually received a better rate from the UP being the 
RCPE could originate in Mankato where UP has their yard and being the RCPE does 
have trackage rights from Tracy to Mankato or not. I am assuming this is the 
reason CP did what they did. So any rate decrease gets passed on to the 
producer. RCPE has been very aggressive on getting better rates for us and are 
very good to work with."  

   That's good news for Luken since he has told me more than once that his 
winter wheat crop is the "best I have seen in years and hoping for quality 
because there will be quantity." So, lower wheat rates means better margins for 
his elevator and better savings to his producers.

   "This crop is going to have to move someplace, and elevators will be the 
first stop saving what little room they have on farm storage," said Luken. "I 
feel farm storage is still 40%-45% full of off-quality grain not wanting to go 
anywhere because of discounts and hoping for good quality this year to get rid 
of some of the off-quality grain still on farm."

   He told me his producers have been locking in new-crop contracts not only 
for new crop coming off field delivery, but also deferred months October, 
November and December. "The carry in the market is telling them that, and I 
have also been steering them in that direction to do so." On June 10, the carry 
from the July contract to the September was at 17 cents, and the carry from the 
September contract to December was at 42 cents. 

   Protein content will be "the number-one big question around here and where 
the mills will set their levels," Luken said. "Mills have not had to change 
their grind for many years, and this may be a year they have to from a 12 pro 
to maybe an 11.8 pro level. If we do not see a 12 protein crop, average basis 
will have to do the work. Time will tell."

   In the past few weeks, flour mills and resellers (Gulf exporters) have been 
paying up for 12% protein old-crop winter wheat, fearing that the new crop may 
not make an average of 12% protein this year due to the cooler, wet growing 
conditions last month. U.S. Wheat Associates reported June 8 that harvest is 
27% complete in Texas and 28% complete in Oklahoma.

   "Kansas is just now starting to get into full swing with less than 1% 
harvested," USW said. "Harvesting is underway from central Texas to southern 
Kansas and continues to move north and west very quickly and should continue to 
do so if the warm, dry weather continues." USW said that while test weight and 
yields are very good so far, average protein seen is 11%." 

   It's still too early to tell, but we could see the discounts widen below 12% 
if protein levels don't come up.

   Mary Kennedy can be reached at mary.kennedy@dtn.com 

   Follow her on Twitter @MaryCKenn

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Happy New (Marketing) Year, US Winter Wheat!

   Too much of a good thing isn't always a good thing. That was pretty much the 
case this past year after the U.S. produced a large, good-quality, high-protein 
hard red winter wheat crop. The rest of world also produced a large crop. Not 
all of it was as good as the U.S. crop, but there was still plenty to go 
around. The end result was a cheap basis for U.S. HRW wheat most of the crop 
year.

   U.S. Wheat Associates reported that in 2015-16, wheat farmers across 16 
states grew a crop that "provided the characteristics buyers need to meet the 
growing global demand for high-quality baked goods and other wheat foods. Even 
though less was seeded, farmers produced more HRW than in 2014-15."

   The average grade for last year's crop was U.S. No. 2 due to the test weight 
average of 59 pounds. A No. 1 grade requires 60 pounds. The average dockage was 
0.8% and total defects were 1.8%. Best of all, the average protein was 12.4%. 
Approximately 22% of samples tested were less than 11.5% protein, 41% between 
11.5% and 12.5%, and 37% above 12.5%, according to the 500 samples from the 12 
states making up the Gulf and Pacific Northwest tributary regions collected by 
USW and its partner organizations.

   The crop was sound, coming in at an average of 400 falling numbers. Falling 
number measures the effect of the enzymes on wheat quality in flour or meal. It 
also measures if there is any sprout damage. Falling numbers below 200 are a 
sign of severe sprout damage and unacceptable for milling. Mills require a 300 
FN or better to be considered for flour milling.

   OLD-CROP BASIS WEAKER FOR MOST OF YEAR

   The DTN National Average Basis held above the five-year average through 
November 2015, then dropped below and stayed there for the rest of the 2015-16 
crop year, ending the year at an average of -56 vs. the prior year average of 
-40. 

   Alex Basset, a risk management consultant at INTL FCStone Inc. in Kansas 
City, Missouri, told DTN in an email, "HRW basis was weaker than normal as we 
had little export demand of any kind." If you followed weekly export sales and 
weekly inspections for last year, you would have seen the world "dismal" used 
over and over again when summarizing the weekly reports.

   Dan Maltby, a former HRW buyer in Kansas City and currently a consultant for 
Risk Management Group Minneapolis, told DTN that "one of the things ailing 
winter wheat is that world wheat production continues to outstrip world wheat 
demand and U.S. ending stocks bore the brunt of that."

   For most of the last crop year, Maltby added, "U.S. wheat exports were also 
negatively impacted by a relatively strong dollar, especially when compared to 
other wheat exporters, but this has recently moderated somewhat. Still-cheap 
wheat prices at harvest time again sink to be competitive with corn feeding."

   WHAT WILL NEW CROP YEAR BRING?

   In the May 10 USDA WADSE report, U.S. HRW production, projected at 863 
million bushels, was up 4% from a year ago. The U.S. all-wheat 2016-17 carryout 
was projected at 1.0239 billion bushels, up from the current 2015-16 estimate 
of 978 million bushels. If realized, it would be the highest carryout seen 
since the 1987-88 crop year. Foreign wheat carryout for 2016-17 was projected 
at a new record of 257 million metric tons, up 14 million metric tons from the 
current 2015-16 estimate. Production was put at 727 million metric tons, down 
from last year's record of 734 million metric tons, but if realized, would be 
the second-largest production number in history.

   So far in this new crop year, there has been strength in HRW wheat basis, 
but mainly for 12 proteins. All buyers of milling quality are concerned that 
new-crop HRW wheat will be lower protein. Basset said, "Early harvest results 
out of Texas and Oklahoma are showing good test weight and good production with 
below-normal proteins as a result of good moisture and cool temps, which will 
likely be the case across the Plains. There is still a lot of low test weight 
off quality wheat around from last year, which should keep spreads wide, and 
wide spreads incentivized commercials to carry wheat."

   USW reported on June 3 in their weekly harvest report that the 2016 HRW 
wheat harvest continues to be slower than normal and struggling to make 
significant progress due to relentless rain across Texas and Oklahoma. "Texas 
harvest is 18% complete. Wheat in central and northeast Texas has been mature 
and ready to cut for a couple of weeks. Some wheat has been cut in coastal 
areas and west-central Texas, but moisture has kept combines out of most 
fields. Wheat throughout Oklahoma has now been ready to cut for several days, 
but harvest progress has also been delayed by moisture in the fields. Test 
cutting has been reported as far north as the Oklahoma/Kansas state line. The 
weather forecast is for dryer conditions early next week. This could allow 
harvest to begin from central Texas to southern Kansas. Early test weight 
reports continue to be very good and producers are pleased with the yields. 
Early protein reports continue to average about 11.5%."

   "As we head into a new year, while U.S. export projections are somewhat 
improved," Maltby said in an email. "Argentina's wheat crop had problems, 
Russian Ruble has risen, Canadian wheat stocks will remain tight; very wide 
carrying charges in KC (73 cents from July '16 to July '17) and a cheap basis 
indicate the best marketing option for producers and wheat handlers alike is to 
store as much wheat for as long as possible."

   Basset added, "We saw a new-crop barge to Brazil in export sales Friday and 
could see this continue. It all depends on quality of the Argentine crop, and 
we will need to watch the crop in the Black Sea as they have exported wheat to 
Brazil as well."

   "We are staring at another large crop, which will likely keep new-crop basis 
under pressure unless we have quality concerns or bump in exports," Basset 
continued. "It will be tough for the U.S. to see a major increase in exports as 
the U.S. dollar stays strong; we will need to see quality issues elsewhere to 
have a better chance."

   Informa Economics on Friday released its latest U.S. survey-based crop 
production estimate, increasing its winter wheat production forecast by 21 
million bushels from 1,427 million bushels to 1,448 million. "The bulk of the 
increase was for HRW wheat production, which is forecast at 882 million 
bushels, up about 19 million bushels from USDA's May forecast. No demand 
changes were made to the U.S. 2016-17 balance sheet. The additional supplies 
fell to ending stocks, which now are forecast at 1,115 million bushels for the 
2016-17 crop year."

   Maltby said, "The most interesting question on the horizon then is ... will 
U.S. wheat acreage decline again? If it does not, then it suggests wheat must 
be used in some rotations, no matter what the price, and of course if that's 
the case, wheat prices' only hope of a rally is tied to something other than 
wheat demand. IF acreage drops, and producers continue to switch to oilseeds or 
corn, or try something 'new,' like pulses, then possibly the stage would be set 
for production to be less than demand."

   Mary Kennedy can be reached at mary.kennedy@dtn.com

   Follow Mary Kennedy on Twitter @MaryCKenn

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Burning Question: When Will Old Crop Move?

   Flat price increases in the last few weeks have begun teasing some old-crop 
soybeans and corn out of storage -- more beans than corn, according to my 
sources. Buyers and transportation companies are expecting a large movement of 
stored old-crop grain starting in mid-June.

   On April 18, I wrote a column about the amount of old-crop corn, soybeans 
and other grains that had not been priced. Here is a link to that story for 
comparison to what the situation looks like now: https://goo.gl/iiHLAK 

   From April 18 to May 18, the DTN cash corn index price gained 15 cents and 
the cash soybean index picked up a whopping $1.07. DTN National Average corn 
and soybean basis weakened by 3 cents since April 18, but given the rise in the 
cash prices, it didn't seem to matter; unless you had set the basis prior to 
the rise in futures, which put you ahead of the game. 

   "In my neck of the woods, what I like to call the 'easy bushels' have been 
moved when it comes to corn. By easy bushels I mean the grain that needed to go 
to ensure bin quality, cash flow and other needs were taken care of prior to 
planting season. The rally in the market combined with reasonably solid basis 
values at the start of said rally really helped make that decision much easier 
for guys," Angie Setzer, vice president of grain at Citizens Elevator in 
Charlotte, Michigan, told me.

   Setzer said her "draw area" runs throughout Michigan and into northern Ohio 
and Indiana. "Going into summer, the corn bushels that are on the farm will 
likely be a bit harder to buy. We'll either need to see basis improvement start 
to kick in or see another leg up in the market to get much of what is left on 
the farm to move in June or early July. Of course that won't apply to everyone, 
but many of the guys I work with are now wanting to see if their bet on holding 
bushels into the summer will pay off. That combined with the slow start to 
planting pace in Michigan has some holding back on additional old-crop sales 
until they feel confident the crop they're planting this spring will be 
worthwhile." 

   On the bean side of things, Setzer said, "Most old-crop beans that have been 
sitting on the farm have been shipped. There may be some sitting out there just 
in case this market gets even crazier than what it has been, but for the most 
part, at least with the guys I work with, the bean bins are relatively empty. 
At this point on the side of the buyer, the movement in grain April into May 
has provided more than enough available supply in the short term with many 
feeling comfortable on the purchase side through June. 

   "I am starting to see some feeders poke their heads up inquiring on summer 
values, with some plants also inquiring what it will cost to get late-summer 
bushels bought. At this point with our shorter crop last year and the late 
start to planting, we could see things in this area get extraordinarily 
interesting, value-wise, late in the summer into harvest. The tale of two very 
different worlds when it comes to values in the Eastern Belt versus the Western 
Belt will continue."

   Tim Luken, manager of Oahe Grain, in Onida, South Dakota, said, "I can tell 
you I bought more grain 30 days ago in one week than I did in the last four 
months before that. Ever since then, farmers have been selling off and on. We 
get a rally, some gets sold. A fair amount of corn has moved already and put 
into position via DP or contract."   

   A grain merchant in northeast Illinois told me that farmers in his area are 
generally 80%-90% sold on beans and 50%-60% sold on corn. "There is a lot of 
old-crop corn to move off the farm yet. Unpriced, farm-stored beans are hard to 
find right now. Most sold beans early to create cash flow needs this winter."

   PRODUCERS WEIGH IN

   DTN Managing Editor Cheri Zagurski maintains a reader advisory group of 
producers/grain merchants that she gathers information from on a regular basis 
throughout the growing and harvest season. I asked her to pose these questions 
to them: How much grain do you have left to sell? Of that amount left to price, 
how much of that grain is stored on farm and needs to be moved to the elevator? 
Is some of it on delayed price storage and already moved? 

   Mark Israel from southern Georgia said: "I would say that we have 
approximately 100,000 bushels corn left to sell. It is all stored on our farm 
in bins. We also have wheat and a few beans, but I'm not really sure how much."

   Bob Birdsell of Stanberry, Missouri, replied that he only had a small amount 
left. "We still have one-third of our '14 corn because we got very little '15 
corn planted. We have sell orders in, but they just can't quite get there. It 
is stored on the farm. We just about got there and they widen the basis out, 
then the market dropped ... just about there again. We have 20% 2016 corn 
priced. The beans are gone; about three weeks too early but they are gone. 
Thirty percent of '16 crop is priced."

   Jason, Willemarck, of Baraboo, Wisconsin, said: "I still have 1,500 bushel 
of corn left in storage. Soybeans have already been sold back in February. Corn 
I have is in storage at the elevator, which makes it easier to sell when I need 
to. Yes, storage fees apply but that is small and just easier when I sell. Plus 
I don't have to worry about getting it to market and spoilage. The goal in mind 
is to make an average price for the crop as time moves on. That price, though, 
has to take into consideration all the input costs and storage. Usually by the 
end of summer I have the rest of the old-crop sold already. I always have 
new-crop contracts already in place for fall delivery. Again it all plays a 
role in risk management and I take a long look at the overall price and 
breakeven point for the year." 

   Loren Hopkins, Deerfield Farms in northeast Ohio, said: "Here in northeast 
Ohio, farmers seem to be emptying their bean bins since the cash price went 
over $10. The elevator I manage is receiving more beans than corn. Farmers are 
still hoping for $4 cash corn. We also filled a lot of new-crop bean targets 
over $10."

   "This is a hot topic as far as what is left in the country," Luken told me. 
"Railroads call and ask, grain buyers calling and asking, newspapers calling 
and asking ... everyone wants to know when old crop will hit the road. Here it 
is almost the end of May, corn is in, beans being put in and only 45-60 days 
from harvest. I still feel we will get some big movements in June."

   It appears that most of the industry is anticipating the same thing. But for 
now, until farmers are done with all of their planting, it is a waiting game.

   Mary Kennedy can be reached at mary.kennedy@dtn.com 

   Follow her on Twitter @MaryCKenn

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