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Market Matters Blog           10/16 14:08
Crude Crashes to 4 Year Lows
STB "Ups the Ante" for Railroads
Informa Pegs Bean Production Above 4 Billion Bushels
Senators Request USDA Study on Rail Service Delays
Industrial Reports to Make a Comeback in 2015
Elevators Full; Grains Get Grounded
Barge Freight Surges Higher
A Demand Optimist
Elevator Manager: Fall Harvest Could Be "Complete Disaster" Without Rail Cars 
A Full Notebook

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Crude Crashes to 4 Year Lows

   Crude oil prices have plummeted more than 20% since June, hitting four year 
lows, and for those of us in the Midwest, that means gasoline prices now (or 
will soon) sport a $2 per gallon price tag. At least the price of one of 
farmers' input costs is going down. 

   Surging U.S. oil production and declining global demand has shifted the 
supply and demand situation, but the role of the Organization of Petroleum 
Exporting Countries (OPEC) is perhaps more interesting. Several articles, like 
this one from Bloomberg (http://bloom.bg/1u4qvAn), explain that OPEC wants to 
pressure U.S. shale producers into curtailing production by driving prices 
below breakeven levels -- even though major oil exporting countries aren't sure 
of how low they'll have to push prices. 

   As a result, every major financial news service ran a version of the 
"winners vs. losers" article this week. The losers are energy producers, their 
countries and governments, while the winners are consumers, according to an 
article in the Financial Times. "The decline in prices would generate a $1.8bn 
daily windfall, about $660bn annualized," the article stated. "Tracking this 
into gasoline prices, in the U.S., where last year some $2,900 per household 
was spent on gasoline, the windfall would amount to a tax rebate of just under 
$600 per household." (You can find the whole article here: 
http://on.ft.com/1CqSZIR) 

   Farms run on diesel fuel and gasoline, and the current market provides 
farmers a chance to lock-in some of their needs at good prices. DTN senior 
analyst Darin Newsom said farmers may want to consider contracting with a local 
provider to cover 2015 needs. Harvest is a busy time for farmers, but Newsom 
said that "unless some drastic change occurs, which it shouldn't, opportunities 
will be hard to miss."

   But he cautions: "Looking for a buying opportunity in a market where the S&D 
is so out of balance is similar to hedging into the cattle market. It might 
make sense on paper, but hedges/contracts have not turned out well."

   Michigan farmer Barry Mumby has been following energy prices for several 
weeks, but feels the future is murky. 

   "With a general slowdown in the economy and the uncertain situation with all 
that has happened with Ebola this week including the abrupt unexplained rally 
in the Dow Jones at about 2 p.m. Wednesday, a solid market projection is iffy 
at best," he said to DTN in an email. "I have been interested in hedging my 
fuel needs in the July '15 heating oil contract, which is at a five year low as 
I write this. There is no carry from now to July, so the big players must view 
the growing U.S. supply of crude will hold prices at or below the current 
price. 

   "My gut tells me it is time to cover up, but market signals really aren't on 
my side," he said. 

   Newsom said the fundamentals of the crude market are difficult to read as 
the market structure appears to be in a transition. The strengthening inverse 
is usually bullish, but now it's actually a bearish sign. I highly suggest 
reading his Newsom on the Market column on Friday for a better understanding of 
the changes underway in the crude oil market and what it means for you and your 
farming operation. 

   That said, has anyone taken advantage of this price move? How?  

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STB "Ups the Ante" for Railroads

   OMAHA (DTN) -- Beginning Oct. 22, all Class I railroads will be required to 
publicly file weekly data reports regarding service performance "to promote 
industry-wide transparency, accountability, and improved service," the Surface 
Transportation Board announced on Oct. 8.

   The order follows the board's recent public hearings regarding rail service 
issues, at which many rail shippers expressed concerns about the lack of 
publicly available rail service metrics and requested access to certain 
performance data from the railroads to help them better understand the scope, 
magnitude, and impact of the current service problems. The data collected 
pursuant to this order will give the board and interested parties a better 
real-time understanding of the current rail service issues." Here is the link 
to the STB announcement: http://goo.gl/7vW8SP

   The announcement was welcomed by those in the industry who have been asking 
for more transparency and overall communication from the railroads. 

   North Dakota Farmers Union President Mark Watne issued a statement saying, 
"This decision is a good first step toward addressing and understanding the 
severity of our rail service problems in the state. Greater transparency will 
no doubt lead to a more productive dialogue between shippers, railroads and 
farmers ... and give all the stakeholders a better understanding of what each 
other faces. It may also help us pinpoint, and maybe even avoid, future 
bottlenecks in our rail system with all the real-time data exposed."

   The National Grain and Feed Association also commended the STB for requiring 
railroads to expand weekly public reporting of rail service performance," 
including for the first time for nonagricultural products and to extend the 
reporting requirement to all Class I railroads. The new STB order also expands 
the scope and granularity of service metrics that all Class I railroads now 
will be required to report, and applies many of the reporting requirements to 
encompass coal, crude oil, ethanol, automotive, intermodal and manifest 
traffic." 

   The NGFA added, "Importantly, the STB's order also requires collaborative 
reporting of detailed rail service metrics specific to the congestion at the 
Chicago terminal hub by the six Class I carriers operating at the Chicago 
gateway -- BNSF, Union Pacific, CSXT, Norfolk Southern, Canadian Pacific and 
Canadian National." 

   The Association of American Railroads (AAR) issued a statement from CEO 
Edward R. Hamberger on Oct. 8 after the release of new STB requirements: "We 
are examining the STB decision. Since 1999, railroads have on a weekly basis 
voluntarily provided the STB and the public with railroad performance measures 
on terminal dwell time, velocity and cars online. It is unclear how the 
increased reporting requirements in today's order will in any way lead to 
improved service.

   "Railroads are investing and hiring at an accelerated pace to provide the 
capacity needed to meet growing demand as traffic continues to rebound to 
pre-recession levels, continued Hamberger. "Hiring and training people, and 
building infrastructure take time. Railroads will continue to work with their 
customers to meet the demand to move more freight as America's economy 
continues to grow."

   CALL FOR GREATER TRANSPARENCY

   Before STB issued its order on Oct. 8, shippers, industry leaders and state 
government figures at a recent STB hearing in Fargo, N.D., stressed the need to 
assess the reality of car backlogs and slow service in the U.S.

   Bob Zelenka, executive director of Minnesota Grain and Feed, asked the STB 
at the Sept. 4 meeting to continue requiring the BNSF and Canadian Pacific 
Railroad to provide greater transparency through service metrics. 

   The National Corn Growers echoed that request, "NCGA is worried about the 
railroads' abilities to provide timely and efficient service during the 
upcoming fall harvest and heavy shipping period. As a result, we urge the board 
to continue to carefully monitor BNSF's and CP's grain service through the fall 
harvest and take additional actions, if needed." 

   Eric Broten from Dazey, N.D., testifying on behalf of the American Soybean 
Association, said, "We support the request made by the ASA for the STB to 
require railroads to submit metrics showing past dues, average days late, 
turnaround times, etc. for agricultural customers vs. crude oil customers and 
other customers.

   Oil train service was the one thing most people who testified at the 9 
1/2-hour hearing on Sept. 4 wanted to know about. What was the level of service 
for oil trains, and were oil cars ever late like the backlog of grain cars? 
While the railroads present never answered that question, it's not difficult to 
figure out the answer if you live or travel in the northern part of North 
Dakota and Minnesota because nearly 75% of the time, long trains of oil cars 
are all you see.

   On July 26, the Minneapolis Star Tribune newspaper said, "Fifty oil trains, 
each loaded with more than 1 million gallons of North Dakota crude oil, pass 
through Minnesota each week, and almost all of them go through the Twin Cities, 
according to the first detailed reports on the state's crude-by-rail traffic 
obtained by the Star Tribune.

   "The reports, submitted to state officials by railroads and stamped 
'confidential,' say that oil trains can be more than 100 tank cars long as they 
pass through 39 of the state's 87 counties," reported the Star Tribune. "The 
greatest concentration is on the BNSF Railway main line between Moorhead and 
the Twin Cities. Canadian Pacific, another railroad serving North Dakota's 
Bakken region, sends far fewer oil trains through the state, the data show."

   That may change in the near future on the CP. At a recent meeting of CP 
investors, CEO Hunter Harrison's presentation said that, energy products are 
expected to buoy revenue and the CP may carry as many as 200,000 carloads of 
crude oil in 2015, which is more than double what the railroad moved in 2013.

   BNSF AND CP SERVICE UPDATES

   In his weekly podcast, John Miller, Ag VP for BNSF said, "We have completed 
forming all shuttles for fall harvest and they are in use in the market place. 
We are flowing soybeans to the PNW to meet vessel demand and turn times have 
rebounded back over 2.5 TPM in that area." 

   "With shuttles fully built and operational, general fleet car can be 
directed toward single and unit car orders," added Miller. "We expect past dues 
to stabilize as car supplies recover to meet demand." Miller said that current 
delays are a result of harvest demand and noted that overall volumes so far 
this harvest exceed volumes seen last year at this time in North and South 
Dakota. Here is the link to the weekly service update to the STB: 
http://goo.gl/VOQaSZ

   In their update to the STB for the week of Oct. 10, the CP stated, "We 
continue to experience extended dwell within the grain supply chain. This 
includes origins in North Dakota for wheat shipments east, rail interchange 
locations and destination unloading at mills and export terminals. We are 
working with the shippers, facilities and other railroads involved to improve 
the situation, both at origin and destination. Overall rail capacity is reduced 
when cars sit idle. This is because any delay in the supply chain results in 
fewer trains or cars in the cycle." Here is a link to the complete update by 
the CP to the STB: http://goo.gl/a4ApKj

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

   Follow Mary Kennedy on Twitter @MaryCKenn

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Informa Pegs Bean Production Above 4 Billion Bushels

   OMAHA (DTN) -- Private analytical firm Informa Economics sees U.S. soybean 
production climbing over 4 billion bushels with an average yield of 48.5 
bushels per acre. 

   "This estimate adds to the bearish case for soybeans and soybean prices are 
trading lower in response to Informa's numbers," DTN Analyst Todd Hultman said. 

   Informa's production forecast is 104 million bushels higher than USDA's 
September estimate and its yield estimate is 1.9 bpa higher. No state average 
yield is expected to decline from September's estimates, Informa said. 

   Soybean planted acres will likely be reduced by 1.2 million acres in USDA's 
October report, but yield increases will "more than offset a potential 
production loss associated with the acreage reduction."

   USDA will incorporate the Farm Services Agency's certified acreage data in 
its October Crop Production and World Agricultural Supply and Demand Estimates 
that will be released on Friday, October 10, at 11 a.m. CDT. 

   Informa expects USDA to forecast corn production at 14.395 billion bushels. 
While that's unchanged from USDA's forecast in September, Informa sees USDA 
increasing the national average yield to 176.4 bpa, up 4.7 bpa from September, 
while lowering harvested acreage by 2.3 million acres to 81.6 ma. 

   "If true, the total production is the same as USDA's September estimate and 
probably less than the many in the market currently expect," Hultman said.

   Illinois's average yield will cross the 200 bpa mark, Informa said, coming 
in at 206 bpa. That's 12 bpa higher than USDA's September estimate. Iowa corn 
yield is forecast at 191 bpa, up 6 bpa from USDA's last estimate. 

   Informa projects grain sorghum production at 412 mb, 19 mb lower than USDA's 
forecast in September, with an average yield of 68.2 bpa, one bushel larger 
than last month's estimate. Informa's analysis of FSA acreage shows an expected 
371,000 acre decline in planted acres. 

   Informa also released its updated estimates on world numbers, but Hultman 
said there were no significant changes for corn or soybean supplies. 

   "For wheat, Informa expects roughly 4 million metric tons more world 
production than USDA's estimate for the Former Soviet Union (+1mmt), Europe (+2 
mmt) and Argentina (+1mmt)," Hultman said. "On the other hand, they expect  
roughly 1.5 mmt less production for Australia than USDA estimates. 

   "Informa's estimates are bearish overall for wheat, and prices are showing 
little impact from Friday's report."

   Katie Micik can be reached at Katie.micik@dtn.com 

   Follow Katie Micik on Twitter @KatieMDTN

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Senators Request USDA Study on Rail Service Delays

   It seems like everyone's got their back-of-the-envelope calculation of what 
this year's rail service delays have cost farmers and businesses throughout the 
Northern Plains. 

   The University of Minnesota put out a study arguing the railway bottlenecks 
cost the state's farmers almost $100 million between March and May, and it 
could cost $124 million more in lost revenue. 

   Now, bipartisan pair of senators is asking USDA to conduct a more thorough 
economic analysis of the challenges facing agricultural shippers. Sen. John 
Thune, R.-S.D., and Amy Klobuchar, D.-Minnesota, said in a letter to Secretary 
Vilsack that regional studies only tell part of the story, and a study that's 
broader in scope is needed. 

   "Therefore, we respectfully request that the USDA conduct a more detailed 
economic analysis of the ongoing transportation challenges facing producers and 
agricultural end users in our region, including food processors, livestock 
producers, and ethanol refiners," the senators wrote. "When completing this 
analysis, we request that the USDA also consider, as appropriate, commodity 
prices, food prices, and changes in agricultural exports. We hope that the 
information provided by this analysis will present a clearer picture of the 
challenges facing the agriculture industry as we work to help resolve them."

   It sparked an interesting dialogue in our newsroom this morning. 

   DTN Analyst Todd Hultman's first impression: "I think what they are saying 
is: Since our farmers are getting hurt by the lack of rail service, let's take 
advantage of this to give money to some Midwest university to run a study so it 
looks like we are doing something when, of course, we are not."

   DTN Cash Grains analyst Mary Kennedy: "One of the things that has never been 
100% quantified is the loss of money to all businesses affected by the rail 
backlog. I think it would be good to have in order to 'drive the point home' if 
any legislation is going to change giving the STB more power. And even then 
that may not fly, but it's worth a shot in my opinion."

   Sen. Thune and the chairman of the Senate Commerce Committee, Sen. Jay 
Rockefeller, D.-W.V., passed a bill out of their committee last month that 
would give the Surface Transportation Board, the railroad's governing body, a 
little more authority while streamlining some of its functions and allowing the 
board to only respond to complaints, it could initiate investigations. 

   But DTN's Ag Policy Editor doesn't give the bill much of a chance. "Don't 
hang your hat on any legislation coming out of Congress on this. The House is 
incredibly anti-regulatory and that will be the case even more so after the 
election. The Senate will become more anti-regulatory after the election as 
well. Moreover, you are dealing with these low prices affecting a wide swath of 
land that only affects a handful of congressional districts." 

   So here's my question: what's the end game? 

   Yes, the Senators want to pass a bill. Numbers might help them rally others 
to their cause, but like Chris said, it's an uphill battle. 

   I think farmers would like to be able to point to a study showing that they 
weren't crying wolf and making up wild tales of their misfortunes. The problem 
is a very real one for farmers, and I think most people within the agriculture 
industry know that farmers pay the cost of the transportation through lower 
cash prices. 

   But when I talk to friends who know nothing about agriculture, they still 
know about the oil boom in the Bakken. Fiery train explosions make headlines, 
and they can't help but look at a picture or two. It might take a very large 
number in a headline (thinking billions) to draw their attention to the 
economic damage farmers, grain shippers and exporters faced this past year. And 
even then, their attention will be fleeting.

   The biggest outcome of a national study may be that it helps farmers and 
elevators put their losses into perspective. I'm sure everyone knows their 
neighbors are feeling the same pinch, but understanding how their losses fit 
into the bigger picture may reinforce the fact that they are far from alone.    
 

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Industrial Reports to Make a Comeback in 2015

   Agriculture industrial reports on wet and dry ethanol milling, flour 
milling, oilseed crush and cotton suffered from the Census Bureau's budgetary 
axe in 2011, but USDA announced on Monday it's ready to put the reports on 2015 
calendar. 

   "As soon as the Census Bureau announced they were discontinuing the Current 
Industrial Reports, we began hearing from agriculture stakeholders around the 
country about the impact this decision had on the industry," said NASS 
Administrator Joseph T. Reilly. "These reports are such an important element of 
sound economic policy planning and are used for market analysis, forecasting, 
and decision making that we knew we had to provide the data and I'm glad that 
beginning this year NASS is able to do just that."

   USDA officials announced they'd be taking over the Current Agricultural 
Industrial Reports last year, and they've been spending a lot of time since 
then building contracts with the industries involved and establishing a 
baseline. 

   The ethanol production and flour milling baselines are a little farther 
along than their oilseed crush baselines, a NASS spokesperson told DTN. 

   The agency will work with 200 ethanol production facilities representing 
capacity of 14.792 billion gallons of annual production. NASS plans to survey 
183 flour milling facilities with a reported 24-hour milling capacity of 
1,594,755 hundredweight, USDA stated in a press release.

   It's tougher to gather a baseline for the oilseed data because the 
industrial reports cover a much broader industry, like salad dressing 
manufacturers, and USDA has to build a whole new set of contacts, the NASS 
spokesperson said. The Census's soybean crush data was perhaps the most-missed 
report. Its absence left the less thorough survey of National Oilseed 
Processors Association members as the key market indicator. 

   The NASS spokesman said the hope is to start releasing all of the industrial 
reports in 2015, but he couldn't specify when each report will be released. 
USDA did publish a new website on the surveys with more details. You can find 
it here: 
http://www.nass.usda.gov/Surveys/Guide_to_NASS_Surveys/Current_Agricultural_Indu
strial_Reports/  

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Elevators Full; Grains Get Grounded

   OMAHA (DTN) -- As the row-crop harvest in the Northern Plains moves ever 
closer, worries are mounting among producers and grain elevator operators about 
continued transportation delays and whether there will be enough room to store 
what are expected to be large corn and soybean crops. 

   Tim Luken, elevator manager at Oahe Grain, Onida, S.D., told DTN in an email 
that one of his producers asked, "How am I going to get cash to pay bills if no 
one will take any grain because they're full?"

   Luken said that as it stands now, he will have no room to bin soybeans this 
fall. He said he will have room for corn and some sunflowers, but space will be 
tight. "This will put more burden on those elevators that are going to be 
taking beans this year, and their space is limited also. We will see piles like 
never before. FYI: We don't pile anything on the ground at Oahe grain. It 
doesn't pay at all. 2014 harvest will be one for the record books along with 
one to forget about; can't wait until it's over." Oahe Grain has storage 
capacity of 5.7 million bushels and is located on the RCPE line which is 
serviced by the Canadian Pacific. 

   Luken said the rail cars he does get are still past-due orders from 
midsummer and shuttles have priority over smaller units, which puts him in a 
bind to load out grain owed to others in smaller quantities. "I have buyers 
screaming for product; mainly ethanol plants. The corn I owe was sold for 
delivery in August, and here it is almost the end of September. They are 
running out of corn and need mine now because the harvest hasn't started there."

   On a different short line served by the CP, the DMVW in western North 
Dakota, an elevator is still waiting for 23 small units (25 cars each unit) 
ordered for placement earlier this summer. CP shippers have said the railroad 
is still pushing elevators to cancel past-due orders, but many refuse to do so. 
In their Sept. 22 service update to the STB, the CP said they would have older 
grain car orders cleared by Oct. 1, "with the possible exception of some 
remaining North Dakota grain orders." Many CP shippers in North Dakota have 
said in the past that appearances of the CP clearing backlogs is "deceiving" 
when they have actually cancelled many of those open orders.

   In their Sept. 26 filing to the STB, the CP said, "The number of open grain 
car requests is 3,943. Of these requests, 3,243 will be serviced through our 
existing car request program. The remaining 700 of these requests represent 
cars that will move in train service. The number of open requests will continue 
to come down over the coming weeks." Here is the link to the CP filing to the 
STB: http://goo.gl/H55VTS

   BNSF REPORTS CAR PLACEMENTS SLIGHTLY BEHIND FROM PRIOR WEEK

   According to the BNSF website on Sept. 26, the railroad said their 
maintenance program remains ongoing, particularly across the North Region prior 
to winter's arrival. "The major maintenance work taking place along our main 
line between Chicago and Minneapolis-St. Paul continues as planned, resulting 
in limitations on capacity and re-routing of some traffic onto alternate 
routes." The service update also reported the BNSF is "aggressively ramping up 
our capabilities in anticipation of harvest-related volume."

   In his weekly podcast, John Miller, group vice president for agriculture, 
said "our goal is to have all needed resources in place to handle the soybean 
harvest in the north as efficiently as we can for our customers." Here is a 
link to his full podcast: http://goo.gl/d2NNtr

   Miller also reported on the status of past-due cars and said as of Sept. 25, 
the total number of cars owed was 2,921 versus 2,581 the week prior and days 
late on average were 8.6. Cars owed in North Dakota increased to 2,072 versus 
1,646 the prior week and the average days late were at 9.2. 

   A shipper in western North Dakota said his car orders, small units and 
singles, are 45 days late and on top of that, secondary freight costs were 
"ridiculous." The last reported cost for secondary freight on the BNSF was at 
$5,000 to $6,000 per car, an added cost over and above the tariff rate and fuel 
surcharge. Some of that extra cost is passed on to the farmer in the form of 
cheaper basis, but there are many elevators who just don't have the cash flow 
needed to pay that kind of money for guaranteed freight.

   As the corn and soybean harvest continues to pick up steam, shippers on all 
rail lines are concerned that the demand for cars will increase even more than 
last year's harvest and that railroads may have a hard time keeping up with 
that demand, even though they have made progress on past-due orders. There is 
growing concern that much of the corn harvest could end up on the ground if 
elevators fill up and the possibility of that happening is becoming more real 
as the large corn harvest is hand in hand with a near-record soybean harvest.

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

   Follow Mary Kennedy on Twitter @MaryCKenn

    

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Barge Freight Surges Higher

   Record corn and soybean crops are expected to be harvested this fall and 
with both corn and soybeans moving down river to the Gulf, barges are in high 
demand.

   Two weeks ago, barge freight rates were already creeping higher with bids 
from 625% above tariff to 700% above tariff through the river segments. On 
September 24, rates were at 875% to 1,100% above tariff for September and 
October. The Illinois River segment at 1,000% above tariff ($4.64) is equal to 
$46.40 per short ton which equals $1.30 per bushel (56 pounds corn or 
soybeans). In the Cairo to Memphis corridor, where the tariff ($3.14) is 
cheaper, 1,100% above tariff is equal to $34.54 per short ton which equals 97 
cents per bushel. 

   Barges are still a cheaper mode of transportation compared to trucks or rail 
cars, but any increase in freight will affect profit margins for shippers and, 
in the end, those higher costs will be passed on to the producer in the form of 
a cheaper basis. Processor soybean basis has been under harvest pressure for 
the past week with basis levels tumbling off the recent high spot values and 
moving closer to the cheaper, new-crop values. 

   While river terminals have adjusted basis levels down in anticipation of 
harvest as well, the river basis the past 2 weeks has also been a victim of the 
sharp increases in barge freight. Soybean basis at two Illinois River terminals 
went from +35 over the November soybean futures and +170SX two weeks ago to -30 
under the November soybean futures and -15SX on September 25. Two weeks ago on 
the Ohio River, 2 terminals were posting +300SX and +250SX and on September 25 
they were posting -37SX and +5SX. 

   Current year-to-date grain barge tonnages are 30% higher than the 3-year 
average and the highest since 2010, according to USDA's Grain Transportation 
report. "As of September 13, year-to-date movements of 24 million tons match 
last year's annual total," said USDA. "Grain movements are up for the year 
despite above-average ice accumulations in the early part of the year and 
flooding during the summer that disrupted navigation."

   Frequent, heavy rains have increased Mississippi River levels at St. Louis, 
Missouri, and have aided in nearly trouble free barge movements. As of 
September 25, the river in St. Louis was at 15.3 feet above zero gauge, well 
above the average level and above the drought conditions during 2012. USDA 
noted that with continued adequate river levels and record crops, barge 
operators expect strong demand for their services during this year's harvest. 
Barge service in the Minneapolis-St. Paul area usually closes by Thanksgiving 
due to the beginning of ice accumulations. However, USDA said "barge 
availability and high rates may be a concern in this area, especially if there 
is a delayed harvest and earlier-than-normal freezing temperatures."

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

   Follow Mary Kennedy on Twitter @MaryCKenn

    

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A Demand Optimist

   Analyst David Hightower thinks the next two months will be ugly for the corn 
and soybean markets, but he's a little more optimistic about six-month 
timeframe. He also stressed that the low in the corn market will come before 
the low in the bean market. He thinks demand will be stronger than people 
think. 

   "Make no mistake about it. Soybeans may have an additional dollar on the 
downside. Corn may have 30 or 40 cents on the downside." That's what the 
fundamentals would dictate, he said, adding that "in this day in age, we can 
get a pile up. We can have a combination of internal and external information 
and developments that can weigh on prices or exaggerate prices on the upside.

   "Supply is starting to feel the pinch already, but the market doesn't care 
about that yet," he told attendees at the U.S. Soy Global Trade Exchange 
conference. The market's current focus is on how much oversupply of corn the 
U.S. will have after harvest. 

   "We are very close to the period of high supply in the corn market, and 
that's why I'm projecting that in the next two to three months we may find the 
end of the downdraft in corn prices," Hightower said. "We've already seen that 
Argentina, Venezuela and maybe Brazil are going to be reducing their corn acres 
by 10%. We also know that the Ukraine is the third largest exporter of corn. As 
we come around next year to the planting of that crop, credit will be extremely 
difficult to come by."

   He said he thinks corn prices have another 30 to 40 cents of downside risk. 
He expects a couple of things to happen around the time prices reach that 
bottom point. He thinks speculative investors will reach and exceed a net short 
position of 70,000 contracts, China will record large single-increment 
purchases and that ethanol exports will take off dramatically in the December 
to February timeframe. 

   It will take a while longer to see the low in soybeans, he said. Crop 
conditions didn't deteriorate in August like they normally do, and "what I fear 
that more than anything is a surprise report that really puts up ending 
stocks."  

   While beans could see their period of highest domestic supply in the next 
three to five weeks, the low isn't going to come in before more is known about 
actual South American production. USDA recently revised its new-crop bean 
planting upwards for Brazil and Argentina, and some private estimates have even 
come in higher. He thinks the soybean market low, which he puts at $8.50 to $9 
per bushel, won't be seen until early 2015, and that's only if there are no 
major hiccups with South American planting.  

   "There is some long term value at the $9 level," he said.  With bean prices 
in that realm, oil prices would drop to the 25 to 30 cent per pound range, a 
profitable level for biodiesel production. Several conference attendees pointed 
out that biodiesel demand will help absorb large supplies of cheap soybean oil, 
but won't do much to increase demand. Instead, it's more likely to help hold up 
the floor. 

   Hightower argued that another substitution may take place. Soybean meal 
could displace fish meal in aquaculture rations. Global demand for beef, pork 
and poultry continues to climb, a large factor in soybean demand's continuous 
growth over the last decade. 

   "Tte energy function is as strong as ever," he said. "I just don't 
understand why 2015 will be any different than the last ten years. It's still 
going to be the same thing: You've got to have a lot of production, and you've 
got to be able to get it from where you have it to where the world need it, or 
it's going to cause a commodity crunch."

******************************************************************************
Elevator Manager: Fall Harvest Could Be "Complete Disaster" Without Rail Cars 

   OMAHA (DTN) -- Uncertainty surrounding rail car deliveries to grain 
elevators in the upper Midwest could turn the fall harvest into a "disaster," 
according to one South Dakota elevator manager.

   In a letter written by Tim Luken, manager of Oahe Grain in Onida, S.D., and 
presented at the Surface Transportation Board's recent rail hearing, Luken 
stated, "I have sold very little small grain into the market due to not knowing 
when I will be receiving cars to ship out in a timely manner. The farmers are 
full, the grain elevators are full and this fall harvest will be a complete 
disaster."

   Luken sent a copy of the letter to DTN. In it, he talked about how late the 
Canadian Pacific is and has been, and the frustrations and money lost by both 
producers and elevators. "Rail issues started last year in September/October 
with the Canadian Pacific, about the time oil trains were being shipped from 
North Dakota off the Bakken oil fields. Cars we ordered were not fulfilled, and 
it caused elevators from shipping grain that needed to be delivered on 
contract. I am still shipping contracted spring wheat, winter wheat and corn 
that was contracted months ago. As of Sept. 5, I am 257 cars behind, and the 
contract date I am working on is the second week in June."

   Luken added, "This year South Dakota will probably see the biggest grain 
production the state has ever seen. I have traveled all around the state and 
have not seen one grain deficit area anywhere. Even west of the Missouri River, 
crops look outstanding. This part of the state is not known for high 
production. This year will be an exception. With this being said, we should see 
near-record grain volumes handled no matter where you are in the state. 
Instead, it will probably be the lowest amount of grain handle that elevators 
will have due to the rail problems we have today."

   Oahe Grain, located on the CP served RRCPE railroad in Onida, S.D., handles 
9 million to 15 million bushels of grain each year. Luken said in his letter, 
"I can see this year of being a disaster with less bushels handled due to the 
low volume of rail cars delivered to our facility. This will also affect our 
bottom line of profitability; all due to poor rail service."

   CANADA STILL LOOKING FOR PAST-DUE CP CARS

   Doug Tallon, chairman of the board of directors of Great Western Railway, 
told DTN in an email that he is starting to get CP cars that he ordered in 
March and April. Tallon farms in southwest Saskatchewan and is on the board of 
directors of Great Western Rail, a short-line rail that is serviced by CP and 
interchanges with CP in Assiniboia, Saskatchewan.

   "I found it quite interesting that the CP delegate at the STB hearing in 
Fargo tried to justify their record, saying they are moving more than the 
long-term averages," said Tallon. "This is the same argument they have been 
using with us. We are starting to receive cars as I suspect with harvest taking 
place, that the grain companies are emptied out and the grain isn't coming in 
fast enough to order more cars. The grain terminals are caught up."

   Tallon said that they have approximately 1,400 outstanding orders from the 
old crop with another 700 new-crop orders and the CP is not keen on 
acknowledging the old orders as shippers in the U.S. have also reported. "Even 
though we are only a month and a half into the new-crop year, our biggest 
shipper on the line is telling customers that due to the poor rail service they 
may already be at capacity for the 2014-15 year," said Tallon. "The customers 
we have nurtured to come to our short line for product are becoming more 
frustrated by the day. The lack of rail service has had a very detrimental 
effect on our business relationships as well as our bottom line."

   Tallon said that shipments to the U.S. have been the hardest to meet and the 
inability to ship grain in a timely manner is having a negative affect on the 
cash flow situation for the area farmers. 

   BNSF CATCHING UP ON PAST DUE CARS

   John Miller, BNSF's vice president in charge of agricultural shipments, said 
in his weekly podcast that heavy rains last week in Missouri, Kansas and 
Nebraska caused delays to traffic due to soft tracks. In his weekly podcast on 
Sept. 11, Miller said that while most of the tracks have reopened, there is 
still a washout at Craig, Mo., that BNSF crews are working on repairing.

   Miller said that in the past four weeks, the BNSF had "met or exceeded" the 
BNSF expected shuttle turns of 2.5 per month. He reported that overall, shuttle 
TPM was at 2.9 to the PNW and 2.9 TPM to the Gulf. 

   Miller said that, "Clearly one of our goals as we move through harvest is 
more predictability and consistent turns on freight. The Pacific Northwest is 
the largest draw on our system for AG volume during fall. This season, the 
route to PNW will have added and expanded sidings and a new double track.

   Miller also reported that system wide, there are 1,879 past-due orders with 
North Dakota owed 864 and Montana owed 470. To see the complete service update 
to the STB, here is the link: http://goo.gl/V7QncV 

   As of Sept. 14, the CP had not filed a service update for last week.

   STB Considers Additional Steps to Facilitate Recovery of Rail System.

   STB Chairman Dan Elliott filed a letter to the STB on Sept. 10, outlining 
the ongoing rail issues facing all entities that rely on railroads for their 
livelihood. In the letter, he said, "Although it has long been board policy to 
favor private sector resolutions when possible, further regulatory action may 
be warranted for expediting the overall recovery or alleviating particularly 
intractable service failures. I also believe that any such action should not 
benefit one industry at the expense of others, or spur unintended negative 
consequences. While I cannot speak for my fellow board Members, I anticipate 
further action in light of the recent Sept. 4 hearing."

   "At that hearing, both BNSF and CP acknowledged that their respective 
recoveries had not proceeded as well as they hoped, but expressed cautious 
optimism that service improvements would occur in the fall, in particular for 
agricultural shippers. Overall, the hearing helped to crystallize the board's 
understanding of the current challenges." Here is a link to Elliot's filing to 
the STB: http://goo.gl/jXJMFP 

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

   Follow Mary Kennedy on Twitter @MaryCKenn

******************************************************************************
A Full Notebook

   Sometimes when I get on a roll with a project (or two), I lose focus on my 
regular tasks, like keeping the blog fresh. I'm lucky some of my colleagues 
have stepped up to help fill this space over the past few weeks. 

   My whole focus lately has been on putting together a feature for The 
Progressive Farmer's mid-November special issue on marketing and writing the 
article on DTN/The Progressive Farmer's Agriculture Confidence Index, which 
will be published on Monday morning. My notebook is beyond full, and here are a 
just a few snippets of what I've been asking farmers about lately. 

   One Iowa farmer I spoke with said he anticipates expanding his soybean acres 
from 30% of his land this year to 60% of his land next year. Beans require 
fewer inputs, and he figures he'll only lose $15 per acre on beans compared to 
$75 per acre on corn. 

   This is one of the major trends I've picked up in my interviews over the 
past couple of weeks. Farmers are seriously thinking about how to cut back on 
their costs without sacrificing yields. Most, all actually, said they'll 
postpone new equipment purchases. Some have mentioned switching more acres to 
beans. One Missouri farmer, who had cattle and hogs in his younger days but was 
forced to sell out, said he'd switch some row crop land back to hay production. 

   Shortly after that conversation, this moved across the Dow Jones Newswires: 
"The much-improved financial picture for U.S. livestock producers could prompt 
some farmers to switch to using land for raising animals rather than growing 
crops, says Purdue economist Chris Hurt. Grain prices have fallen sharply from 
their 2012 highs and livestock supplies have tightened, helping growers of 
pigs, cattle and chickens boost profit margins. "If the years from 2007 to 2013 
could be described as the 'Grain Era' in which crop-sector incomes had an 
extraordinary run, the coming period may be described as the 'Animal Era' when 
producers of animal products have strong returns," Hurt writes. Moving from 
cash crops to livestock "will be most predominant" in the central and western 
Great Plains, where land for crop use is "marginal," he predicts.

   Farmers in Oklahoma and other parts of the southwest have told DTN reporters 
they'll be paying much more attention to the livestock portions of their 
business. And the Missouri farmer who left the livestock industry, isn't alone. 
DTN Livestock Analyst John Harrington said it's hard for people forced out of 
the business, and often into retirement, to return. But a growing industry 
needs more suppliers. During the grain market's boom years, producers turned a 
lot of grass and pasture ground into fields of corn. Some of that marginal crop 
ground may be shifted back into pasture during the 'Animal Era.'

   Stay tuned. There's plenty more in my notebook to share. 

******************************************************************************


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