BNSF discounts rail rate to ship wheat into southern US Plains

CHICAGO: BNSF Railway said on Friday it was lowering its rate to ship US soft red winter wheat from Chicago to west Texas and western Kansas in response to demand for feed from cattle producers.

BNSF said on its website that it was lowering rates to ship the grain on that route by $300 per car, a level that traders said equated to 8 cents per bushel. The discount went into immediate effect and will continue through June 30.

The move comes amid tightening supplies of feed and high corn prices in the cattle country of the southern US Plains, which is still in the grip of a months-long drought, despite winter storms in recent weeks.

"In this case, obviously because of what has happened with the corn supply and corn prices, the market has started using wheat in the feed area," said BNSF spokesman Steve Forsberg.

Corn is the primary feed for cattle, but livestock feeders occasionally will add wheat to their rations when it becomes cost-effective.

"It's not easy for feedlots to switch ration ingredients. It takes about a month of slowly working up the percentage of a new grain, and another month on the other end switching back. It's a headache and it's costly," said Oklahoma State University extension livestock marketing specialist Derrell Peel.

"Having said that, if you look at wheat prices versus corn prices, we are at that point where I would expect them to start looking at it," Peel said.

For example, the price of cash corn in Chicago on Friday afternoon was roughly $7.33 per bushel while soft red winter wheat was trading at $7.02.

Chicago Board of Trade grain traders and cash cattle sources said cattle producers have been adding wheat to feed rations.

"That's definitely where the demand exists," said one veteran CBOT grain trader, adding, "Wheat has been leaving the six (CBOT) delivery areas for several weeks."

The CBOT reported stocks of soft red winter wheat held at commercial warehouses in its six delivery zones at 58.3 million bushels as of March 1, down from 60.9 million a week earlier and 68.5 million a month ago.

Typically cattle feeders will use hard red winter wheat, which is grown in the southern Plains and typically used to make bread. But BNSF's rate specified soft red winter wheat, which is produced in Ohio, Indiana and Illinois, as well as Missouri and Arkansas.

Said another CBOT trader, "If a cattle feeder needs to buy wheat, SRW world is where they'll get it."

Copyright Reuters, 2013
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