ANALYSIS-Soaring US barge freight set for more gains

Fri Sep 3, 2010 8:56pm BST

* Barge freight rates up sharply ahead of bumper harvest

* Fall barge freight may swing widely, eye on harvest pace

* Deferred price premiums slow movement, but storage tight

By Karl Plume

CHICAGO, Sept 3 (Reuters) - Freight rates to ship grain by barge to the U.S. Gulf, which surged as much as 50 percent last month, are set to head higher this fall as the corn and soybean harvest builds momentum, likely raising export prices.

But gains could be tempered by price incentives for farmers to sell grain later rather than sooner, and possible autumn rains that could slow the pace of harvest.

"There are a lot of factors that, if timed right, could really mean we could see a volatile freight market to both sides. The timing for all these moving pieces will be key," a barge broker said.

Barge freight rates surged in August as demand for barges rose with moderate grain movement and signs that the corn harvest could be several weeks earlier than normal. (Graphic: link.reuters.com/sux39n )

Many farmers in the southern Midwest were harvesting corn this week, at least two weeks sooner than usual.

Gulf export elevators were also holding a massive volume of barges loaded with lower-quality corn from last year's crop. They were waiting for better quality new-crop corn to "blend up" the grain, which kept barge supplies tight.

"It could take 60 days to get those 600 barges blended off. That's a lot of damaged corn," a corn trader said.

BARGE RATES SURGE

Spot barge freight bids on the Mississippi River at St. Louis were around $20 per ton late this week, up from about $13 per ton a month ago, according to barge industry sources.

Bids for spot barges on the Illinois River late this week were quoted around $22 per ton while bids on the lower Ohio were around $25.50 per ton, both up from about $17.50 a month ago.

Rates are even higher for late September and October barges, when harvest is expected to be in full swing, but rates erode after that point.

"Once harvest is done, freight might fall completely out of bed. Rates right now start falling off in November because most people think harvest will be over by then," a barge trader said.

But he said the pace of grain movement from field to export pipeline will dictate the magnitude of the seasonal drop.

"If the carries get any wider here, people are certainly going to find places to put corn with the amount of money you could make storing corn even only to December. Carries will encourage people to do some creative things," a corn trader said.

Cash corn prices for spot delivery to some river elevators were currently about 40 to 45 cents a bushel below prices for corn delivered in December, compared with a typical carry of about 30 to 35 cents, a cash dealer said.

Typically that would encourage farmers to hold grain, but some buyers were offering premiums of about 10 cents a bushel for spot shipments of higher quality corn, muting that incentive to hold.

(Reporting by Karl Plume; Editing by David Gregorio)

((karl.plume@thomsonreuters.com; +1 312 408 8720; Reuters Messaging: karl.plume.reuters.com@reuters.net))

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