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Market Matters Blog           08/27 17:20
Is Tuesday's Minneapolis Cash Trade a Sign of Things to Come?
SD Shipper: "No Train, No Grain"
StatsCan Reports Canadian Production to fall Below Expectations
Rail Backlogs Continue
Harvest Storage, Transport Worries
Merchandising Makes Money Once Again
Upper Mississippi River Closed Again
Dread Grows as Harvest Nears 
Imaginary Numbers
Grain Shippers Worry Upcoming Harvest Will Put Railroads Further Behind

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Is Tuesday's Minneapolis Cash Trade a Sign of Things to Come?

   All indications point to a large global wheat crop this year. The most 
recent USDA report forecast global production at a record 716.09 million metric 
tonnes, up almost 11 mmt or 1.5% from last year's crop. Sounds bearish? Perhaps 
not so.

   Crop quality around the world has the potential to become a larger and 
larger issue. For example:

   -- Recent reports have France importing wheat to bring up their quality in 
order to meet export commitments, with a large percentage of French production 
failing to meet milling quality. Algeria, one of their top customers, has since 
stated that they will refuse to accept production sourced from multiple 
originations.

   -- While Ukraine's total harvest is suggested to fall 13% due to the 
conflict with Russia and fighting in the country, from 63 mmt to 55 mmt, 35% of 
the crop is estimated to reach feed quality, up from 25% to 30% last year.

   Weather remains the key for the North American harvest. As of the most 
recent weekly USDA Crop Progress report, 27% of the spring wheat crop had been 
harvested, down from the five-year average of 49%. The State of Washington is 
well ahead of average, Idaho and Montana are on track with the five-year 
average, while Minnesota and the Dakotas are well behind average as of August 
24. Minnesota had taken off 22% of the crop versus the average of 66%. South 
Dakota had harvested 57% as compared to the average of 87% and North Dakota had 
harvested 10% as compared to the 43% five-year average. In addition to the 
delays, the overall Good to excellent crop rating was reduced by two percentage 
points to 66% from the previous week. The Prairie harvest remains in early 
stages.

   Tuesday's cash trade in Minneapolis showed just how jittery this market is, 
with early reports of low protein seen in harvested new crop. As seen on the 
right of the attached chart, Tuesday's trade in milling quality spring wheat on 
the Minneapolis Grain Exchange for delivery of 12% to 15% protein 
Chicago/beyond saw basis levels reported raging from unchanged (12% protein) to 
$1.75/bu higher(15% protein).

   The high end of the reported trading range for 12% protein was up 5 cents to 
95 cents over the September. The high end of the reported trading range for 13% 
protein was up 65 cents to $2.25/bu over the September future. The high end of 
the reported trading range for 14% protein was up $1.05/bu to $2.90/bu over the 
September while the upper end of the trading range for 15% was up $1.75/bu to 
$5/bu over the September future. The September closed at $6.12 3/4 cents on 
Tuesday.

   This is a remarkable one-day move and could signal what's to come.

   Cliff Jamieson can be reached at cliff.jamieson@dtn.com

   Follow Cliff Jamieson on Twitter @CliffJamieson

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SD Shipper: "No Train, No Grain"

   OMAHA (DTN) -- Oahe Grain in Onida, S.D., has been full since Aug. 14 and 
had been expecting a train from the CP, but it was a "no show."

   "If and when the train does get here," manager Tim Luken told DTN via email 
on Aug. 20, "we will load 25 cars, 85,000 bushels of spring wheat. That will be 
enough to run us for 5 hours and then fill again. 

   "There are farmers that have their trucks full and waiting for us to get 
room again," said Luken. "Some producers have run out of room and now the only 
room left is at elevators. The RCP&E Railroad is doing the best they can with 
the resources the CP is giving them. This isn't going away anytime soon either."

   Every single Midwest Cooperatives elevator is full, Jeremy Frost, grain 
merchandising manager told DTN via email on Aug. 22. Midwest Cooperatives has 
locations at Pierre, Onida, Blunt, Philip, Kadoka, Draper and Highmore, all in 
South Dakota, and is associated with CHS Inc. The elevator is served largely by 
the Rapid City, Pierre & Eastern Railroad based at Rapid City, S.D., which was 
sold to Genesee & Wyoming Inc. on May 31, by Canadian Pacific Railroad, but 
relies on CP to drop rail cars for shippers on the line.

   "We're just starting spring wheat and piling it on the ground in Pierre and 
are looking for other locations to pile it," Frost said. This is on top of the 
winter wheat, approximately 150,000 bushels, that was piled in Pierre in late 
July and still sits there.

   Frost said some of his farmers are taking wheat south to Nebraska. "Some are 
going further north with their wheat and others are putting it in bags and 
piles," he said. "Typically, they'd make a 50-mile round-trip to sell grain and 
now it's easily 150 miles or more."

   Keith Brandt, manager of Plains, Grains and Agronomy located on the CP in 
Enderlin, N.D., told DTN, "Loading a June 2 shuttle. Have mid-April 25 car and 
single orders not filled. It's going to be a long fall."

   Farther north, Jeff Kittell, manager at Souris River Cooperative on the CP 
in Lansford, N.D., said nothing has changed for him since he talked to DTN one 
week ago. "Still waiting on March orders, but we are 'supposed to' see a train 
this week for weekend loading." He is still concerned the CP may not fill the 
older orders.

   NORTH DAKOTA SENATOR ASKS STB TO HOLD HEARING

   North Dakota Senator George B. Sinner, Democratic-Nonpartisan League Party 
nominee for North Dakota's sole Congressional seat in the U.S. House of 
Representatives, told DTN via email that he encouraged the Surface 
Transportation Board to return to North Dakota for a public hearing over the 
rail backlog. Sinner said the STB "has accepted my invitation to return to 
North Dakota and reassess the very serious rail backlog situation that has 
affected farmers across our state."

   Sinner told DTN, "This hearing is an opportunity for the STB to hear from 
shippers and see that the progress made by the rail companies still isn't 
enough to alleviate the pressure and loss of revenue being placed on farmers 
today. Harvest is here, and our farmers can't wait any longer for action. We 
look forward to having the STB in North Dakota and discussing real, common 
sense solutions." Sinner has been a staunch advocate for grain shippers in 
North Dakota facing the ongoing transportation issues caused by the railroad 
backlogs. Here is the public notice by the STB announcing the hearing on Sept. 
4: http://goo.gl/4p15wS

   The BNSF said in their weekly service announcement on their website that 
good progress in decreasing the number of past-due car orders for agriculture 
customers continued. "U.S. past-due orders are now at 2,609, at an average of 
12.9 days late. Likewise, coal customers experienced higher average daily coal 
deliveries for the week at 744,000 tons, up 30,000 tons delivered compared to 
the prior week, and nearly 22% higher than our baseline week in early February."

   The BNSF said that for the week ending Aug. 19, network fluidity statistics 
were somewhat mixed. "Despite these mixed results, we continue to make good 
progress in key areas. Terminal dwell was 28.9 hours for the week ending Aug. 
15, which is better by 2%, or a half-hour, compared to the prior week. 

   "Train velocity was flat compared to the prior week at 14.6 miles per hour. 
Trains holding for power increased 10% week over week, driven by a 49% increase 
in the South Region caused by weather-related issues in the southwest and 
previously planned maintenance and capital projects. Nonetheless, compared to 
our baseline week in early February, trains holding remains down 31.2%."

   Here is the link for the complete BNSF service report on Aug. 22 to STB: 
http://goo.gl/xyy4hq

   USDA CALLS POOR RAIL SERVICE A "CRISIS"

   In a letter on Aug. 22, USDA filed reply comments to the Surface 
Transportation Board on the board's current rail rate challenge procedures and 
also reported the losses suffered by poor rail service since January 2014. 

   USDA pointed to a North Dakota State University study that estimated a $67 
million loss in North Dakota farm level revenue for crops that were sold from 
January through April. In addition, the study estimated another potential $95 
million loss in farm revenue if crop basis levels did not improve. USDA said 
another study estimated delays in railroad shipping have cost Minnesota corn, 
soybean, and wheat farmers nearly $100 million and have cut deeply into the 
value of grain still in storage.

   "The losses occurred because of unexpected increases in transportation 
costs, such as skyrocketing costs of grain cars on the secondary railcar market 
that peaked at $6,000 per grain car, and other transportation-related costs 
associated with the rail service crisis," USDA stated. "Early on, some of these 
additional costs were likely borne by the exporter through reduced margins, but 
as the situation progressed, were more likely reflected in the prices paid to 
producers for their crops." The entire USDA filing to the STB can be seen here: 
http://goo.gl/WdWciO

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

   Follow Mary Kennedy on Twitter @MaryCKenn

    

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StatsCan Reports Canadian Production to fall Below Expectations

   Editor's Note: DTN Canadian Grains Analyst Cliff Jamieson, who usually blogs 
for DTN's Canada Grains Pro site, wrote today on Statistics Canada releasing 
its first report of expected 2014 production levels for Canadian crops. The 
report was based on results from a survey of 12,850 producers during the July 
23 to Aug. 4 period. We're sharing the comments with U.S. customers interested 
in how Canada's harvest might affect world grain and oilseed stocks.

   ***

   Statistics Canada released its first report of expected 2014 production 
levels for Canadian crops today, basing results on a survey of 12,850 producers 
during the July 23 to Aug. 4 period.

   It was a given that this year's production would be well off the record 
production levels set for many crops in 2013. The major challenge faced in 
estimating 2014 production centers around the excessive rains seen in eastern 
Saskatchewan and western Manitoba: determining the impact to the planted crop 
as well as estimating the total acres left unseeded. As stated in a recent 
Canada Markets blog, this report has a tendency to be conservative in nature 
and tends to underestimate production for almost all crops when compared to the 
final production estimates released in December.

   At first glance, what jumps out from this report are estimated production 
levels which are below even the lowest of trade estimates. Durum wheat 
production, the all-wheat production, oats, barley and canola production 
forecasts for 2014 were all reported to be lower than the lowest of the 
pre-report estimates reported by Commodity News Service. 

   Canada's all-wheat production is estimated at 27.704 million metric tons, 
just below the range of estimates from 27.8 mmt to 29.9 mmt. This would reflect 
a decrease of 26% from last year's record 37.530 mmt crop. The reduction comes 
as a result of a reduction of all-wheat acres planted of 7.6% while the overall 
all-wheat yield is pegged at 44 bushels per acre, down 17.6% from last year.

   Spring wheat yields in Canada are pegged at an average of 43.6 bpa, down 
from 53 bpa last year, but comparable to the five-year average of 43.8 bpa. The 
recent CWB crop tour pegged the average Prairie crop at 43.1 bpa, while the 
yield estimate for spring wheat derived from Statistics Canada's experimental 
Crop Condition Assessment Program (CCAP), using satellite data, came in at 40.6 
bpa for Western Canada. Year-over-year drops in spring wheat yield ranged from 
16.4% in Alberta to 20.6% in Manitoba. On average over the past five years, the 
final spring wheat production estimate has been 8.5% higher than the July 
estimate, suggesting the tendency for a conservative release in this report.

   Durum production for 2014/15 was pegged at 4.953 mmt, well below the 6.5 mmt 
produced last year and also just below the range of trade estimates of 5 to 6 
mmt. Overall durum acres are estimated to be 3.8% below year-ago levels and 
just slightly below the June estimate. The overall durum yield is estimated to 
be 39 bpa, down 19.4% from last year's 48.4 bpa, although there is a wide range 
of expectations for this year's durum crop. Just weeks ago the CWB crop tour 
reported an average yield of 48.1 bpa, just slightly below last year, while the 
recent CCAP release suggested an average yield of 36.6 bpa. Lower-than-expected 
production on the Prairies will see durum buyers take note, as durum prices 
have firmed in recent weeks largely based on production challenges in Europe.

   At 13.908 mmt, the canola crop came in well below expectations of a 14.75 
mmt to 15 mmt crop as indicated by a Commodity New Service poll of trade 
analysts. Other forecasts had suggested this year's crop would reach 14.5 mmt. 
The current forecast would see production equal 2012 levels and a full 4 mmt or 
22.6% below last year's production level. Seeded acres on the Prairies are 
estimated to be just slightly higher than last year at 20 million acres while 
the determining factor in this year's crop is an expected 20% drop in yield to 
32 bpa. Estimated yield reductions are somewhat consistent across the Prairies, 
with an approximated 21% drop in Saskatchewan and Manitoba and 18.8% drop in 
Alberta.

   StatsCan's estimated canola yield is slightly lower than the 34 bpa reported 
from the CWB crop tour, while the recent CCAP estimate was 34.5 bpa. As 
discussed in a recent Canada markets blog, the final December report saw canola 
production increased by 9.8% from the July estimate on average over the past 
five years, which suggests that the trend is towards a conservative July 
estimate. Despite the much tighter supplies this crop year, canola's potential 
is tempered by what's expected to be a record U.S. soybean crop, as well as a 
record global oilseed crop. Futures spreads in today's trade continue to 
reflect a bearish approach from the commercial trade, while uncertainty over 
the 2013/14 carryout will continue to stir debate.

   Production of oats and barley are estimated below the range of trade 
estimates. Oat production is estimated to be 2.639 mmt, below the 2.76 mmt to 
3.1 mmt range of pre-report estimates. This reflects a sharp decline of 1.25 
mmt or 32% from last year's final production estimate and would be the smallest 
crop since 2010. Canadian oat ending stocks will end very tight in 2014/15, 
while the December oat contract has broken above trendline resistance today, 
resistance which has been in place since the last week of February as seen on 
the weekly chart. Yesterday's Canada Markets blog discussed bullish signals 
seen in the oat market leading up to today's report.

   Barley production for 2014 was estimated at 7.164 mmt, well below the range 
of estimates between 7.5 mmt to 8.2 mmt. This marks a 30% reduction in 
production from the 10.2 mmt crop produced in 2013. Barley ending stocks are 
set to move to very tight levels in the upcoming year which will leave barley 
prices high compared to corn prices, barring a weather event which could result 
in larger-than-expected feed wheat supplies on the Prairies.

   Soybean production in Canada came in slightly lower than expected, with 
expectations that production could come in above 6 mmt for the first time in 
history. Today's estimate suggests a 5.9 mmt crop, which would still reflect a 
record production and 13.5% above 2013 levels. The largest volume increase is 
seen in Ontario, where production is expected to increase 487,000 mt to 3.565 
mmt, while the largest percentage increase is seen in Saskatchewan where 
estimated production is suggested to increase 54% to 182,300 mt, only the 
second year that records have been kept for this province. 

   Corn production in Canada is estimated to fall by 19.5% to 11.4 mmt from 
last year's 14.2 mmt, which would make it the smallest crop since 2011. 
Production in both Ontario and Manitoba have fallen back from year-ago levels, 
while DTN correspondent and Ontario producer Phillip Shaw states that corn 
yield estimates for that province remain too high, which could mean further 
revisions in time.

   A 30.8% increase in seeded acres to 3.130 million acres combined with an 
expected 15.7% reduction in estimated yield is reported to see the lentil crop 
increase slightly in size to 1.930 mmt. This remains just below the record 2 
mmt production achieved in 2010. This level of production is slightly lower 
than a previous estimate by AAFC and would continue to suggest tight ending 
stocks and a stocks/use ratio below 10% for the current crop year. 

   A 19.5% increase in seeded acres of dry peas to 3.925 mmt along with a 
reduction in yield of 18% to an estimated 35.7 bpa is suggested to lead to an 
overall 7.6% reduction in production to 3.558 mmt. This would see the 2014 crop 
be the third largest in history, after last year's record production of 3.849 
mmt and the 3.565 mmt produced in 2008. This would also act to tighten the 
balance sheet for 2014/15 and likely result in a stocks/use ratio below 10%.

   One crop whose production did come in above expectations was flax, with an 
estimated 908,000 mt production level just above the 800,000 to 900,000 mt 
trade estimate. This would represent a 27.5% increase from last year and the 
largest crop since 2009. 

   Cliff Jamieson can be reached at cliff.jamieson@dtn.com 

   Follow Cliff Jamieson on Twitter @CliffJamieson

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Rail Backlogs Continue

   OMAHA (DTN) -- As winter wheat harvest winds down (95% as of Aug. 10 
according to USDA's latest Crop Progress report) and spring wheat harvest gears 
up (6% complete), grain transport problems that have existed for months are 
still with us. That frustrates elevator operators wanting to free up space for 
not only wheat but corn and beans in the fall.

   Tim Luken, manager of Oahe Grain on the RCP&E shortline in Onida, S.D., has 
had many sleepless nights over the CP railroad not performing, as he still 
waits for at least 170 past-due cars in the midst of new-crop harvest. 

   On Aug. 13, Luken said to DTN in an email, "I have still not sold any grain 
due to the fact [of] not knowing when we may get cars. I am hoping I can get my 
old contracts due to [the] grain buyer by the end of September. This will catch 
me up. We are cash only on all wheat. We took in 185,000 bushels yesterday and 
only have room for 70,000 today. Will have to wait for trains next week again."

   The problem is exacerbated by what Luken said looks to be a big spring 
winter wheat harvest. "This is just the tip of the iceberg. Hearing of a lot of 
farmers trying to put up more bins," said Luken. "Think about this: We get 
through both small grain and row crops, but there is no way the farmer and 
elevators could ever get cleaned out before next harvest the way the CP is 
getting cars to us. This is very devastating."

   In a letter to the Surface Transportation Board (STB) on Aug. 11, USDA 
Undersecretary of Marketing and Regulatory Programs Edward Avalos said, "With 
remaining grain in storage due to the backlog, grain elevators in some 
locations, such as South Dakota and Minnesota, could run out of storage 
capacity during the upcoming harvest, requiring grain to be stored on the 
ground and running the risk of spoiling. The projected size of the upcoming 
harvest creates a high potential for loss in the affected States."

   USDA is concerned the pace of CP's weekly progress on reducing the backlog 
of late grain cars is insufficient to meet its obligation of fulfilling the 
29,650 open requests for service before October. "We estimate CP would need to 
move about 4,725 cars per week to clear the grain backlog by Oct. 3," Avalos 
pointed out. "This includes about 3,300 past-due cars and about 1,425 new 
requests per week, the weekly average of new requests in July. However, CP's 
weekly reports to the board show it has only been moving an average of 1,969 
cars per week in July, which would leave a significant amount of the grain 
backlog remaining in October." The entire letter to the STB can be seen here: 
http://goo.gl/np4oEG

   The CEO of the Canadian Pacific Railroad does not think his railroad is that 
far behind, according to Agweek. Hunter Harrison told North Dakota leaders at a 
roundtable meeting on Aug. 11 in Minot, N.D., that his railroad might be 
"effectively caught up, in its ag orders, despite reports to the contrary." 
Harrison also said his firm only handles 20% to 25% of North Dakota's grain in 
a normal year, so the problem lies more with the Burlington Northern Santa Fe 
railroad.

   Here is the link to the CP service update to the STB on Aug. 15: 
http://goo.gl/p2t8Ez

   Another CP shipper, Jeff Kittell, manager of Souris River Cooperative in 
Lansford, would likely not agree with Harrison that the CP is "effectively 
caught up." Kittell told DTN in an email that, "Past-due cars for Souris River 
are still as late as March 17 on singles and March 24th on a unit train." He 
indicated some shippers feel CP will get to a point where they roll out the new 
car order system and then just wipe old orders off the books. If that were to 
actually happen, some elevators waiting on CP cars will effectively get further 
behind, as they sit full with old-crop grain and new-crop grain begins to beat 
down their doors.

   BNSF Closer to Filling Past Due Orders

   "The BNSF is getting very close to moving all old-crop related cars", said 
John Miller, vice president of BNSF agriculture products in his weekly podcast 
of Aug. 15. "With this kind of progress, we are confident we will be down to 
2,000 past dues by mid-September, if not sooner."

   According to the website service update on Aug. 15, the BNSF "... has made 
good progress on decreasing the number of past due car orders for agriculture 
customers with U.S. past dues down 21% compared to the prior week and now stand 
at 2,671 past due orders. For coal customers, our average daily coal deliveries 
increased to 734,600 tons, which is up from 716,600 tons delivered the prior 
week, or 2.5% better."

   Montana's past-due car orders were at 618 cars vs. 729 the prior week, 
Minnesota is owed 221 cars vs. 331 cars the prior week and South Dakota is owed 
132 cars vs. 103 cars the prior week. North Dakota is owed 1,325 cars vs. 1,774 
cars the week prior and has been waiting 18.2 days vs. 19.8 days the prior 
week. Here is the link to the BNSF service update to the STB on Aug. 15: 
http://goo.gl/1QIeu6

   Paul Lautenschlager, manager of Beach Coop Grain, Beach, N.D., is staring at 
an elevator full of old crop as the new-crop wheat harvest waits for space and 
he waits for past-due railcars to empty the bins out. He told DTN he is hoping 
to get a train he ordered for June 10 very soon. He is frustrated and said if 
the car situation doesn't get any better, he is "looking for a disaster at 
harvest. Wish me luck!" 

   The BNSF website stated, "While there will continue to be some week-to-week 
fluctuations in the performance of our operation due to normal, periodic 
weather events and planned maintenance and expansion work, we remain focused on 
executing our plan to increase capacity and strengthen BNSF's service 
performance."

   OIL TRAINS CROWDING TRACKS

   In an email to DTN, Bob Zelenka, executive director of the Minnesota Grain 
and Feed Association, said the rail backup is causing financial problems for 
grain elevators and logistical troubles for grain handlers and traders. "We 
still have grain elevators that are several weeks behind on receiving their 
rail cars, while at the same time, every day, an oil train goes by the 
elevator, which seems to add insult to injury," he said. "The extra oil 
shipments have aggravated congestion in St. Paul and Chicago rail yards, 
further delaying whatever grain trains are available to serve farmers.

   Repair work may further delay trains in those areas. In his August 15 
podcast, Miller said tie and replacement gangs will be working in the 
Minneapolis to Chicago corridor, but "engineering and transportation teams will 
co-ordinate efforts to keep traffic moving through fall." This work is expected 
to continue until November.

   "The way things stand right now, it's going to be nip and tuck as to whether 
railroads will be able to move last year's crop prior to new crops coming out 
of the field," Zelenka said.

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

   Follow Mary Kennedy on Twitter @MaryCKenn

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Harvest Storage, Transport Worries

   OMAHA (DTN) -- With a large corn and soybean harvest looming and an abundant 
wheat crop expected in the Northern Plains, farmers and elevators are nervous 
that the delay in rail car placements will continue and storage will fill up on 
the farm and at the elevator, forcing some to store grain on the ground. There 
are reports of winter wheat piles already seen in South Dakota and Montana with 
winter wheat harvest only 55% complete in South Dakota and 40% complete in 
Montana as of Aug. 3, according to USDA's weekly Crop Progress Report.

   BNSF Group Vice President for Agriculture John Miller, speaking at a meeting 
of the North Dakota Agricultural Rail Business Council in Mandan, N.D., on July 
31, sought to reassure nervous customers. He told attendees that the BNSF will 
"perform better than a year ago at harvest."

   In their weekly newsletter the Red River Farm Network, Grand Forks, N.D., 
reported that Dan Wogsland, executive director of the North Dakota Grain 
Growers Association, said: "Farmers are seeing the impact of the poor rail 
service reflected in the cash grain bids at their local elevator. Our basis 
levels are way out of whack. From what I understand, the grain industry is 
taking some extra protection in the basis to make sure they're covered in the 
case of defaults on deliveries. That all goes back to the farmer that is 
expecting, in good faith, that his product gets moved." 

   David Fiebiger, manager at Finley Farmers Elevators, Finley, N.D., and 
president of the North Dakota Grain Dealers Association doesn't agree. "The 
larger issue is obviously the increased freight cost that is making basis 'out 
of whack,'" Fiebiger told DTN this week in an email. "What Mr. Wogsland 
described is elevators being prudent and trying to mitigate the additional 
risks that might be in the marketplace, all due to rail transportation delays. 
To state that the elevator manager is 'taking extra protection' implies that 
the elevator manager is padding his basis, a position I find to be a bit naive."

   In his weekly podcast of July 31, John Miller, vice president of BNSF 
agriculture products, said: "there has been a 26% improvement week over week" 
in car placements. On average, 4,066 cars were owed versus 5,182 the prior week 
and days late were at 19.9 versus 22.2 the prior week. North Dakota is owed 
2,399 cars versus 3,230 cars owed the week prior and has been waiting 23.1 days 
versus 24.1 days the prior week. Montana is owed 660 cars versus 977 cars the 
prior week, Minnesota is owed 468 cars versus cars the prior week and South 
Dakota is owed 105 cars versus 240 cars owed the prior week. Here is the link 
to the BNSF August 1st service report to the STB: http://goo.gl/E9lKLt

   US CP RAIL SHIPPERS HAVE LITTLE HOPE CARS WILL ARRIVE FOR HARVEST

   In their weekly service update to the STB, the Canadian Pacific Railway 
reported that as of July 31, there are 22,457 requests for grain cars in North 
Dakota versus 23,818 the prior week and on average, cars are 11.71 weeks late. 
There are 7,193 requests in Minnesota versus 8,246 the prior week and on 
average, cars are 12.43 weeks late. Here is the link to CP Aug. 1 service 
report to the STB: http://goo.gl/tDDQBb

   The USDA weekly Grain Transportation Report said that, "CP fulfilled only 
1,186 grain car orders in the past week for North Dakota, 210 for Minnesota, 
and 391 for the RCP&E in South Dakota. Excluding any new requests that may 
occur as the 2014 harvest begins, it would take CP another 17 weeks at this 
rate, or until late-November, to eliminate its backlog of grain cars. By this 
time, the 2014 harvest will be nearly complete, and there would probably not be 
enough storage space for both crops, especially in South Dakota."

   Tim Luken is manager of Oahe Grain, Onida, S.D., an elevator that is located 
on the RCP&E railroad which relies on the CP for cars. Luken said, "I am behind 
407 cars with HRW harvest not finished and spring wheat harvest is starting. I 
will only have space for 150,000 to 200,000 bushels of spring wheat because 
most of my elevator is filled with the winter wheat harvest."

   Jeff Kittell, manager at Souris River Cooperative Lansford, N.D., served by 
the CP said that: "We are waiting on five trains and 243 singles, all with want 
dates June 23 and prior. We have already posted no open market winter wheat 
deliveries this fall and are just taking in contract grain; no cash or DP." He 
agrees with other shippers that Canada's Bill C-30 will definitely have a 
negative impact on CP U.S. car placements because there are no penalties in the 
U.S. similar to ones in Canada for not providing timely service.

   BILL C-30, THE FAIR RAIL FOR GRAIN FARMERS ACT

   Canadian producers and commodity groups welcomed the Aug. 1 announcement 
from the federal government regarding the regulations to accompany Bill C-30, 
The Fair Rail for Grain Farmers Act. DTN Canadian Grain Analyst Cliff Jamieson 
said: "The Order in Council which had set minimum weekly volumes for each of 
Canada's two railroads since March was extended until November 29, while was 
also increased to 536,250 mt for each railroad on a weekly basis, up from the 
previous 500,000 mt, with financial penalties in place for failure to meet this 
volume. In addition, the bill requires an increased, more timely flow of data 
from the railways, increases competition between railways with increased 
inter-switching distances, as well as sets a framework for arbitrating 
service-level disputes between shippers and the railways as well as contract 
issues between producers and grain handlers."

   "As can be expected," said Jamieson, "the railways are not happy." Claude 
Mongeau, CEO of CN Rail, Canada's largest railway, said, "As there are no 
structural problems to fix, there is no need for such burdensome and 
ill-advised regulatory intervention," and "the government's approach can only 
stifle supply chain collaboration and may ultimately undermine investment in 
the rail sector." Hunter Harrison, CEO of CN Rail, stated the legislation is 
"disappointing" and "is very unfortunate and clearly demonstrates that despite 
the facts, this government has not listened." Jamieson added, "Meanwhile, 
industry waits for feedback from a number of level-of-service complaints 
against the railways which have been filed with the Canadian Transportation 
Agency."

   Jamieson said that regardless of the Canada regulations, the Canadian 
railroads are not hurting. "CN's latest financial results show record volumes 
moved in the three months ending June 30, revenues increased 17% (revenues for 
grain and fertilizer increased 35%) and net income increased 18% from year-ago 
levels to $847 million. Their share price is currently at $71.90 C$, up 19.3% 
this year. CP Rail also achieved a record quarter, with revenues up 12% and net 
income up 48% on an earnings per share basis. CP trades at $205.03, up 28.5% 
this calendar year."

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

   Follow Mary Kennedy on Twitter @MaryCKenn

******************************************************************************
Merchandising Makes Money Once Again

   The merchandising and agribusiness divisions of two of the nation's largest 
grain trading companies are once again making a profit. 

   Archer Daniels Midland Company and Bunge have both struggled with 
transportation issues and sourcing grain from reluctant farmers this year, but 
it appears the tides have turned, based on their second quarter financial 
reports. What's more, both companies see the strong performance in the second 
half of the year. 

   A few key points show up in each company's press releases. Favorable ethanol 
production margins played a big role. The renewal of export business was 
another. Lower crop prices and anticipation of a large harvest on its way also 
played a role in the company's rosy outlooks.   

   Last week, Bunge announced its Agribusiness sector nearly doubled its 
earnings before interest and taxes over the same quarter last year. It expects 
to meet or exceed its targets for the year. 

   "We had a strong performance in the second quarter with all segments 
reporting higher year-over-year results. Strong global oilseed processing 
margins, driven by big crops and growing demand, led to significantly better 
results in agribusiness," Bunge CEO Soren Schroder said in the company's press 
release. "Improved operational and commercial performance and the addition of 
our new wheat mills in Mexico contributed to a record quarter in food & 
ingredients. The results demonstrate the potential of this segment and the 
value of managing integrated oilseed and grain chains."

   On Tuesday, ADM announced that its earnings from merchandising and handling 
increased to $101 million from $14 million during the same period last year. 
Transportation profits increased to $27 million from $3 million. Meanwhile, 
it's corn processing division profits increased $69 million, and it's oilseeds 
division profits increased $18 million. 

   "In the second quarter, the ADM team continued to execute very well and 
delivered strong results. We capitalized on robust ethanol demand, a recovery 
of U.S. grain export volumes and continuing strong demand for oilseeds 
products," ADM Chairman and CEO Patricia Woertz said in a press release. 
"Today, the crops in North America and Europe are developing nicely, so we are 
preparing for what could be very large harvests."

   Bunge's Chief Financial Officer Drew Burke went into a little more detail. 
"In agribusiness, demand for agricultural commodities should remain strong due 
to the combination of lower crop prices and robust livestock economics. Crops 
in North America and Europe are developing well, supporting good forward 
soybean and softseed processing margins in these regions. After a strong period 
of farmer selling in South America, we expect a slower pace in the second half 
of the year. While this would reduce utilization in the region, it should 
provide additional export opportunities for the U.S. and Europe. It will also 
skew results more towards the fourth quarter."

   The ADM press release can be found here: http://bit.ly/URpnFR  

   The Bunge press release can be found here: http://bit.ly/XAzNev  

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Upper Mississippi River Closed Again

   The heavy rain and flooding in the Upper Mississippi River this spring has 
created another problem for the river: shoaling. Shoaling is the result of 
sediment settling in the river, mainly in channels near locks, causing the 
water levels there to become shallow. This can create sandbars that would be 
dangerous for barges to navigate and they could become stuck. Barges need at 
least a 9-foot draft to navigate safely and when shoaling occurs, the Army 
Corps of Engineers needs to dredge the area, closing all traffic on either side 
of the area.

   The USACE St. Paul District reported significant shoaling between Wabasha, 
Minn., and Alma, Wis. A portion of Pool 4, (a pool is the area between 
navigation dams) located between Wabasha and Alma, was closed to commercial 
navigation July 19. An area of Pool 6 near Winona closed on July 23 after a 
vessel ran aground near Blacksmith Slough by mile marker 719.2. The Corps 
reported that 17 vessels along with 120 loaded barges and 32 empty containers 
have been stalled by the dredging. 

   The Corps said they are still dredging the 9-foot navigation channel between 
Wabasha, Minn., and Alma, Wis., in Pool 4 and estimates completing a 200-foot 
wide pilot channel Aug. 10. The channel in Pool 4 was first closed July 19 at 
River Mile 754 due to shallow conditions. The channel also remains closed to 
commercial navigation in Pool 6, near Winona, Minn., and the Corps estimates 
completing a 200-foot wide pilot channel Aug. 8. The Corps reported that 
several locations have current depths less than 9 feet extending across the 
entire navigation channel.

   The Corps said that they have two government dredging operations, the Dredge 
Goetz and a mechanical dredging crew, along with two contract mechanical 
dredging operations currently working to remove the dredged material from the 
channel. They also have two channel survey boats operating throughout the St. 
Paul District to monitor other areas within the river as well as supporting 
dredging operations. The Corps stated that, "The survey results will be 
evaluated and prioritized based on dredging needs."  

   With barges unable to move up or down river from the Minneapolis-St. Paul 
district to Winona, cash basis levels for corn and soybeans have been 
negatively affected all week. Terminals above the closure cannot receive any 
more empties to load out grain and some have very little bin space to hold 
grain. One elevator in the St. Paul District sent out this notice to their 
customers on July 29: "Due to (lack of) barge availability in the cities, we 
will be shut down for corn receipts until further notice."

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

   Follow Mary Kennedy on Twitter @MaryCKenn

******************************************************************************
Dread Grows as Harvest Nears 

   OMAHA (DTN) -- As harvest nears, elevator operators in the Northern Plains 
still waiting on railroad cars ordered months ago are experiencing feelings of 
dread, especially smaller operators or those handling specialty crops.

   Reports are that larger-shuttle loaders and those handling mainstream grains 
are receiving cars before single-car loaders.

   In its weekly update to the Surface Transportation Board on July 18, the 
Canadian Pacific railroad said they have a total of 23,761 open car order 
requests in North Dakota averaging 10.72 weeks late. The report from the prior 
week showed 24,280 open requests with an average of 10.14 weeks old.

   The problem with the CP reporting system is it does not separate older 
orders from more recent orders, making it unclear how much, if any, progress is 
being made on the past due cars. 

   However, if you talk to most CP shippers in the U.S., especially those who 
don't load 100-car trains, they will quickly fill you in as to how late the 
railroad really is.

   Jeff Kittell, manager of Souris River Cooperative of Lansford, N.D., an 
elevator serviced by CP, said he is "still waiting on a March 6 spring wheat 
unit train." He added, "Single cars ordered for February 3 are supposed come 
this week."

   Keith Brandt, manager for Plains Grain & Agronomy in Enderlin, N.D., said, 
"We loaded a May 5 shuttle yesterday but have orders for smaller units dating 
back to April 8," said Keith Brandt, manager for Plains Grain & Agronomy in 
Enderlin, N.D. "Railroads are really favoring the large unit sizes. That makes 
it tough for specialty crops and there is not a big market for shuttles of 
spring wheat."

   Robert Johnson, CP senior vice president of operations, told the STB, "We 
remain committed to working with our customers and the STB staff to move as 
much grain as possible and to find solutions to problems that may arise." Here 
is the link to the full July 18 report by the CP to the STB: 
http://goo.gl/Po7OZy

   But Kittell, like many other shippers, has little confidence in the CP's 
ability to catch up before harvest. He said his locations need at least three 
to four trains to clean out before harvest and that it was probably "not going 
to happen as winter wheat harvest is about three weeks away." 

   Brandt added, "We are plugged on wheat and wheat harvest is two weeks away. 
There is a lot of unpriced corn that wants to move before soybean harvest and 
that is going to muddle things up for soybean harvest."

   BNSF MAKING PROGRESS

   The BNSF railroad seems to be making progress, as cars owed and days late 
decreased from last week. The BNSF also announced on July 22 that it "will 
offer more shuttles and COTs for this year's fall harvest than in 2013. 
Specifically, we will run at least as many COTs as we did in 2013 during the 
fall months."

   In their July 15 weekly service update, BNSF said, "For the week ending July 
15, overall on-time performance decreased a little over 8 percentage points 
compared to the prior week but is still 27 percentage points better than our 
baseline week in early February. System velocity, which is defined as miles per 
day (MPD), increased to 177 MPD for the week ending July 15 compared to 173.2 
the prior week. For the week ending July 15, our trains holding average is down 
9 percentage points when compared to the previous week and down more than 32% 
since the week ending Feb. 7. Fewer trains holding means more trains can begin 
their trips without delay due to congestion or a critical resource."

   In his weekly podcast of July 18, John Miller, vice president of BNSF 
agriculture products said on average, 6,154 cars were owed vs. 6,720 the prior 
week and days late were at 23.7 vs. 27.1 the prior week. North Dakota is still 
owed the most cars with 3,831 cars owed vs. 4,243 the week prior and has been 
waiting 26.5 days vs. 29 days the prior week. Montana is owed 1,098 versus 
1,212 cars the prior week, Minnesota is owed 425 cars vs. 613 cars the prior 
week and South Dakota's total rose to 489 cars owed vs. 229 cars the prior 
week. Here is the link to the BNSF July 18 service report: http://goo.gl/XkTt55

   RAIL, BARGE FREIGHT COSTS SOAR

   Secondary freight costs continue to rise for U.S. BNSF shippers with the 
last trade reported at $3,500 per car and this is over and above the tariff 
rate paid to move the car. Cars in the primary railcar market (COT auction) 
have been trading at historic highs since late May for guaranteed railcar 
placement for grain shipments in August, September, and October. 

   "Bids for the week ending July 17 ranged between $2,700 and $3,200 per car 
for BNSF Railway's guaranteed grain car placement in September and between 
$2,800 and $3,000 per car for placement in October," according to USDA's weekly 
transportation update. 

   While most trading typically occurs in the secondary railcar market where 
shippers buy/sell cars originally bought in the weekly COT auctions, shippers 
are worried that cars will be hard to come by this harvest. This has sent many 
shippers vying for the weekly allocated cars sold by the BNSF in the primary 
freight market.

   "Unlike premiums paid in the secondary railcar market, which are transferred 
between shippers and do not affect railroad profits," said the USDA, "premiums 
paid in the primary market accrue directly to the rail carrier."

   Barge freight rates on the U.S. river system have also been moving higher 
since the rivers reopened after nearly three weeks of closure due to flooding 
which caused locks in the Upper Mississippi River and parts of the Illinois 
River to close, stopping barge movements. Now, as shippers try to catch up on 
shipments, empty barges are in high demand, sending freight costs substantially 
higher. 

   "As of July 22, barge rates for export grain from St. Louis and the Lower 
Illinois River were $15.76 and $25.38 per ton, respectively," USDA reported. 
"Since July 1, the St. Louis rates rose 52% and the Lower Illinois River rate 
increased 44%."

   Barge operators are expecting demand to be higher than normal when the U.S. 
corn and soybean harvests start, which is sending October barge freight higher 
as well. "October rates for barge delivery to St. Louis and the Lower Illinois 
River are $25.86 and $34.66 per ton, respectively," USDA reported. 

   Higher freight costs both on land and in the river system will be and have 
been a big factor for U.S. corn, soybean and wheat basis levels this year. If 
end users are unable to procure grain when needed, they will absorb the freight 
costs for the most part. If grain is moving at a steady pace, it is likely that 
elevators and eventually farmers will have to absorb those higher costs.

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

   Follow Mary Kennedy on Twitter @MaryCKenn

******************************************************************************
Imaginary Numbers

   The soybean market is still reeling from USDA's July 11 supply and demand 
report where soybean ending stocks for 2013-2014 were increased to 140 mb, due 
to a reduction of residual use to a minus 69 million bushels. Maybe you are 
asking yourself: How can a demand category can possibly be negative? 

   As DTN Markets Editor Katie's article "The Root of Residual," states, a 
negative residual use number isn't anything new. In fact, I remember working 
with her predecessor Pat Hill on a similar article back in 2007, the last time 
USDA played this powerful wildcard. 

   It should come as no surprise that I disagree with this practice and here I 
provide a point-by-point counter argument to USDA's explanation contained in 
Katie's article. I seriously question the process USDA follows.

   The piece states that residual is a statistics term, a numeric value that 
represents how far off your original predictions were. This includes the 
abstract (another fun math term) "discrepancies in measurement." Again, the 
idea that USDA, or anyone, knows how many bushels (tons) are actually produced, 
used, and left over is a fallacy. It's all estimates built on estimates, with 
things like residual use making up the difference. 

   For now I'll leave the assertion that the hilarity that is corn quarterly 
stocks can somehow be tied to the inability to reconcile its balance sheet 
alone, except for the comment "counting new-crop as old-crop." 

   The crux of the matter is that the National Agricultural Statistical Service 
seems to have an interesting equation. In the piece it states this formula: 
Supplies - Use - X (residual use) = Ending stocks. With it being stated that 
residual use is the ONLY variable, the conclusion is that ending stocks are 
assumed before all demand can be subtracted. In times when supplies don't seem 
to be there, that means residual use has to be dropped into negative territory 
to maintain the expected ending stocks figure. 

   I wish I could do my accounting that way. I would estimate my life savings 
considerably higher, then create a debit category that can be negative to make 
it a "reality." That would be fun right up to the point of another powerful 
government agency telling me it isn't exactly legal, with penalties soon to 
follow.

   I find it interesting that toward the end of the piece USDA says domestic 
soybean ending stocks-to-use hasn't fallen below that magical 4.5% level -- 
until now. But, given the open-ended system of accounting USDA has at its 
disposal, don't be surprised if enough 2013 bushels are eventually found to 
bring us back to this imaginary floor (the July ending stocks-to-use figure was 
4.1%). 

   Why the false floor in soybean ending stocks to use? It's simple: What would 
happen if the world's largest buyer of soybeans was told supplies might not be 
available to meet demand? And that your largest competitor has boatloads of 
them ready to move? 

   I could go on forever. The bottom line is as it always has been: These 
reports are unnecessary up until the point that all the variables, including 
residual use, have been given a value. In other words, there is no need for the 
monthly volatility created by USDA, NASS, and WOAB guessing at what the supply 
and demand situation is.

   Come this October, when all the tallying has been done for the 2013-2014 
marketing year (not the 2014 crop mind you), a single, final report should be 
released. The information would be outdated enough that the markets shouldn't 
react, but valuable enough for later study when analyzing past supply and 
demand issues. 

   That's it. One report that looks back rather than trying to project forward, 
and without the fanfare that surrounds what we see today. 

   But it will never happen. It will never be allowed to happen. Therefore 
imaginary numbers like soybean residual use will continue to cause havoc for 
U.S. (and global) producers.

******************************************************************************
Grain Shippers Worry Upcoming Harvest Will Put Railroads Further Behind

   OMAHA (DTN) -- Deliveries of past-due rail cars are still lagging in parts 
of the U.S. and Canada, and grain shippers worry the upcoming harvest will put 
railroads even further behind schedule.

   A North Dakota Canadian Pacific Railway shipper told DTN he just loaded a 
wheat train that was ordered for March 3 and his next train that comes will 
have a March 6 want date. He said he is "...dumping old crop daily and it seems 
to be coming out of (the) woodwork."

   In their weekly service report to the Surface Transportation Board, CP 
reported it has "Cumulative Open Requests (unconstrained)" car orders of 24,280 
in North Dakota and 7,888 in Minnesota and is 10 weeks behind. "Grain hoppers 
online in the U.S. are at 3,649 and their grain hoppers offline in the U.S. are 
at 4,513," CP stated.

   "Demand remains stable for Eastern milling markets, and we continue to fill 
all Pacific Northwest (PNW) demand presented. The demand for movements west 
through the PNW continues to be weak. Despite the fact that we have nearly 
13,000 open PNW requests, actual go-forward demand on the PNW at present is 
between 600 to 800 cars per week," CP reported. Here is the link to the full 
July 14 CP service report to the STB: http://goo.gl/Q2iKOw 

   A BNSF shuttle loader in eastern North Dakota said he has one more corn 
shuttle to load and hopes to be cleaned out by mid-August and ready for 
harvest. A non-shuttle station operator in western North Dakota said he is 
currently loading cars he had ordered for early June. "There is a lot of old 
crop left to move and the situation is not looking good. On top of that, 
secondary freight costs have risen and last week singles went for $2,000 per 
car to $2,300 per car. This week, secondary freight is trading at $3,000 per 
car with shuttle offers at $3,500 per car," he said.

   On July 11, the BNSF updated the STB on their service and car placements. 
According to the July 11 podcast, there were on average, 6,720 cars owed vs. 
7,388 the prior week and days late were at 27.1 vs. 26.6 the prior week. North 
Dakota is still owed the most cars with 4,243 cars owed vs. 4,696 the week 
prior and has been waiting 29 days vs. 28.5 days the prior week. Montana is 
owed 1,212 cars, Minnesota is owed 613 cars and South Dakota is owed 229 cars.

   John Miller, vice president of BNSF ag products, said, "Despite the impact 
of localized flooding along the Mississippi River, the overall network 
performance experienced areas of good improvements." 

   Miller said, "For the week ending July 8, overall on-time performance 
increased 13 percentage points compared to the prior week and is 35 percentage 
points better than our baseline week in early February. System velocity, which 
is defined as miles per day (MPD), slowed to 173.5 MPD for the week ending July 
8 compared to 177.5 the prior week, but is still nearly 2% better that our 
baseline week in early February when we were at 170.8 MPD." Here is the link to 
the BNSF July 11 filing to the STB: http://goo.gl/5IKRMW

   CANADIAN RAIL UPDATE

   The CN railroad reported an average weekly car-spot (cars placed on tracks 
at an elevator siding) of 5,544 in June, 2,311 cars per week above the 
five-year average of 3,233 cars," said DTN Canadian Grains Analyst Cliff 
Jamieson. "Canadian Grain Commission data for week 49, or the week ending July 
13, indicates 919,000 metric tons of all grains were shipped from the primary 
elevator system on the Prairies, which is just slightly higher than the 10-week 
average."

   Jamieson continued, "CP Rail's announcement of a record quarter is being 
heralded by the media as the company's turnaround continues, with the company's 
second quarter profits up 48% at $371 million. Revenues from grain rose 32% 
from the previous year in Canada while achieving a 26% increase in the United 
States. The company reports that oil by rail movement could increase to one 
train per day by the company's fourth quarter." 

   MISSISSIPPI RIVER MAY OPEN BY JULY 18

   Ingram Marine barge company reported July 17 on their website that, "Upper 
Mississippi River locks have all reopened. The river is still closed at the 
Louisiana railroad bridge, forecast to reopen to navigation sometime Thursday, 
July 17, 2014."

   The Louisiana Railroad Bridge crosses the Mississippi River between 
Louisiana, Mo., and Pike County, Ill. While rail traffic on the bridge is 
operating normally, the USDA's Grain Transportation Report said, "Additional 
work is needed to allow barge traffic to pass through the swing bridge portion. 
Assuming river levels continue to fall, and the bridge is cleaned and 
maintained, barge traffic will be able to travel the entire navigable portion 
of the Mississippi River by July 17 or July 18."

   With the Mississippi and Illinois Rivers now open as waters recede, barge 
freight rates have begun to rise as terminals unable to move grain the past 
three weeks are looking for empty barges. USDA reported as of July 15, barge 
rates for the Twin Cities to New Orleans were $31.45 per ton, 18% higher than 
before the flood began three weeks ago. On the lower Illinois River, barge 
rates were $18.79 per ton, a 17% increase over last week.

   USDA's Grain Transportation Report from Thursday stated, "During the week 
ending July 12, barge grain movements totaled 491,048 tons -- 29.2% lower than 
the previous week and 19.6% lower than the same period last year. During the 
week ending July 12, 322 grain barges moved down river, down 22.8% from last 
week; 600 grain barges were unloaded in New Orleans, up 4.3% from the previous 
week."

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

   Follow Mary Kennedy on Twitter @MaryCKenn

   Follow DTN on Twitter @dtnpf

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