(The following story by John D.Boyd appeared on the Journal of Commerce website on May 13, 2009.)
WASHINGTON, D.C. — A federal forecast for weak grain output this year could push up commodity prices and spur farmers and grain elevators to release more from their stockpiles to put into railcars for shipment to market, Morgan Stanley Research is predicting.
Analyst William Greene told clients the result could be “modestly positive for all rails,” but especially so for grain-heavy western rail giants BNSF Railway, Union Pacific Railroad and Canadian Pacific Railway.
Greene said these forecasts out of the U.S. Department of Agriculture do not normally affect export and shipment volume forecasts until late in the year, since autumn is the biggest time for grain harvests other than winter wheat that is cut in summer. But with prices and shipment volume low, this year could be different.
USDA predicts flat overall production and export volumes for the 2009/2010 crop year, including mild gains for corn and soybeans while wheat exports fall 11 percent and output drops 19 percent.
Such a sharp forecast decline for wheat could quickly translate into higher prices for that grain, Morgan Stanley said. Since farmers have stored a lot of their grains rather than ship it at weak prices, “tempered grain production has the potential to stimulate favorable prices – which would likely lead to de-stocking, thus stimulate volumes,” it said.
The group did not mention another factor that could spur shipments. If, as Morgan Stanley expects, wheat prices rise soon in response to the USDA outlook, that could also encourage shipments of stored wheat from last year’s record harvests just before the 2009 summer harvests of winter wheat begin.