The threat of a nationwide railway strike is already sending ripples through commodity markets and would come at an inopportune time for grain producers and users as corn and soybean harvest gets under way.
“Given where the U.S. is in its crop cycle, a rail strike would pose a large impediment to the movement of both grain and required fertilizers for fall applications, after harvest,” said Pete Meyer, head of grains and oilseeds analytics, S&P Global Commodity Insights, in emailed comments on Wednesday.
That could have far-reaching implications since global grain supply remains constricted due to Russia’s invasion of Ukraine and as farmers prepare acres for 2023 plantings, he said.
More than 100,000 rail workers, their unions and some of the nation’s biggest railroad operators face a 12:01 a.m. Friday deadline to agree to new contract terms. After that, those unions can legally strike, a move that could drive transportation costs higher, stall commutes and gum up shipments of coal, chemicals, cars and grain, and cost $2 billion a day, by one estimate.
See: Why a possible railroad strike would cripple the supply chain, stoke inflation
futures fell Wednesday, with analysts tying part of the decline to worries that some shipments could be halted as early as Wednesday in anticipation of a possible strike.
Analysts have warned that a strike could create logistical woes. Arlan Suderman, chief commodities economist at StoneX Group, this week noted on Twitter that combined corn and milo, or sorghum, in the Plains states and Iowa is projected to be down more than 700 million bushels this year, “prompting the need for massive rail shipments west to feedlots, just as rail is on verge of a strike later this week.”
A rail strike would also have implications for energy markets, with around 70% of U.S. ethanol moving by rail, said Tom Kloza, global head of energy analysis at OPIS, a Dow Jones company, on Twitter. That means a strike would likely send gasoline prices up rapidly, he said.
West Texas Intermediate crude for October delivery
rose $1.17, or 1.3%, to end at $88.48 a barrel on the New York Mercantile Exchange Wednesday. October gasoline
finished at $2.5245, up 1.8%. its highest close since Aug. 31.