(Bloomberg) — The deep freeze that has left almost five million Americans without power is snarling shipments of goods from corn to soybeans, shutting meat plants and curbing ethanol production.
Traders say it’s increasingly hard to move grain to ports in the Pacific Northwest, and ice warnings are restricting navigation on the Illinois River. Energy costs soared, prompting some ethanol and soybean processing plants to slow down, said the traders, who asked not to be identified because the information is private. Cargill Inc. is curbing energy use while Archer-Daniels-Midland Co. slowed production at several locations due to gas shortages. Tyson Foods Inc. was among meat producers forced to shut plants in Texas.
The Arctic freeze gripping the central part of the U.S. comes just as China is loading up on American crops. The world’s largest commodities importer has already bought a record amount of corn, while soybean purchases are running at their fastest pace in three decades. Combined shipments of U.S. corn and soybeans climbed to a new peak in the fourth quarter, driven by China.
“I am hearing of delayed shipments of soybeans and grain due to the extreme winter weather,” said Mike Steenhoek, executive director lobby group Soy Transportation Coalition in Iowa. Testimonials point to the journey to the Pacific Northwest as “being the biggest challenge,” he said.
A large part of grain that travels to Pacific Northwest ports goes via rail and the need to clear ice from tracks is “an obvious disruption,” he said. The cold weather also impacts the efficiency of a train’s braking system, which in turn reduces the capacity of a single train, requiring more locomotives.
Some soybean processing and ethanol plants have also slowed production due to skyrocketing energy costs, according to traders.
“We’ve heard from numerous producers here in the last several days that many of them have had to drop to 50%-60% of their normal run rates because they are trying to conserve natural gas,” Geoff Cooper, chief executive officer of the Renewable Fuel Association, told reporters Tuesday.
‘Voluntary’ Reductions
Cargill, the world’s largest agricultural commodities trader, is reducing its energy usage and working with suppliers and customers to minimize disruptions.
“We are voluntarily doing our part to reduce our usage to help states get through this cold snap,” Cargill said in emailed response to Bloomberg questions.
ADM said it slowed production at several locations due to reduced gas supplies. The Chicago-based company also temporarily idled a few grain elevators, adjusted some transportation routes and is taking extra precautions for employees that may be exposed to the weather during the work day.
Dairy farmers are also taking a hit, in some cases being forced to dump milk that they can’t get to market.
Pam Selz-Pralle, owner of Selz-Pralle Dairy in Clark County, Wisconsin, which has 470 milking cows, said her daughter, who farms nearby, couldn’t get into her snowy driveway because of the harsh weather and had to dump milk because of the delay. “They had to actually dump milk outside because if it’s so cold and windy that milk trucks are freezing up on the highway and can’t get to you to pick up the milk, where is it going to go?”
Prices for hard red winter wheat delivered in May rallied as much as 3.7% to $6.4525 a bushel on Tuesday. Corn for May delivery climbed as much as 2.5% while soybeans for May delivery rose as much as 1.6%. Ethanol and cattle prices also jumped.
The weather has sent U.S. oil output plummeting and driven up prices for natural gas.
“Cold weather has, on one hand, sent natural gas prices surging and probably encouraged ethanol producers that could slow or idle to sell their fixed-price supply for a windfall,” independent renewables trader Neil Shah said in an email. “On the other hand, rationing of natural gas or rolling blackouts have hobbled plants.”
Either way, Shah anticipates a short-term drop in production.
“There is a longer concern about rail logistics remaining disjointed or plants having trouble getting back up,” he said.
STX Beef’s cattle-processing facility in Corpus Christi, Texas, was closed Monday and Tuesday due to “current power outages and the adverse weather we are currently experiencing,” the company said in a post on its Facebook page. Tyson shut down its plant in Amarillo.
Sanderson Farms, the U.S.’ third-largest chicken producer, said the winter storm is affecting operations in Texas, Louisiana and Mississippi. As many as 200 broiler houses in Texas lacked power Tuesday morning and four were destroyed in Mississippi as snow collapsed roofs.
“This experience is similar to a hurricane,” Chief Executive Officer Joe Sanderson said in a statement. “We have experience managing through catastrophic weather events, and this will be no different.”
(Updates with ADM statement in second paragraph, Sanderson CEO comment in last.)
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