West Coast Port Congestion Ripples Through Ag Markets
Feb 17, 2015

Closely tied to an ongoing labor dispute settlement at U.S. West Coast export facilities, U.S. hog prices have dropped to their lowest level since December 2009. In the last three months, CME Group lean hog futures prices have dropped 32%. And the markets could return from Presidents' Day, Monday night, with more pain, without an end to the West Coast port congestion. Additionally, market watchers are worried the labor talks between shipping companies and the dockworkers’ union will further affect other ag commodity exports.

As of Monday, the Pacific Maritime Association and the International Longshoreman and Warehouse Union issue has stranded tens of thousands of containers on cargo ships. The two sides met Friday without any agreement. The issue is so serious that President Obama has Labor Secretary Tom Perez intervening with the dispute negotiators. As the West Coast port congestion grows, avoiding a shutdown of the 29 West Coast ports and agreeing on a contract settlement are the negotiation goals.

Over 20,000 dockworkers at 29 West Coast ports seek a new contract. The union has been operating without a contract since July, as labor negotiations continue with Pacific Maritime Association (PMA). Specifically, U.S. meat exporters have been watching product sitting on containers, unable to be shipped. “This is causing serious problems for U.S. meat exporters and has the potential to become a crisis,” Ron Plain, University of Missouri livestock specialist, stated in a weekly outlook letter to subscribers. “Containers of meat destined for export are piling up and growing old at West Coast docks.”

About 22% of U.S. pork production, 10% of beef, and 20% of chicken are exported each month, with most going out from the West Coast, according to Plain’s compiled data. “The potential loss in export value is huge and is a big threat to farm prices,” Plain stated. A complicating factor for the ongoing longshoreman strike along the West Coast is the brisk pace of traffic and business at the rest of the nation's major ports stemming from a completely different sector of the economy, says Samuel Elliott with Kirby Inland Marine out of Percilla near Galveston, Texas. Though the West Coast situation has yet to cause barge traffic to divert to the Gulf of Mexico (an already virtually infeasible option because of construction in the Panama Canal), Gulf ports like Galveston and New Orleans are busy enough handling another major U.S. commodity heading to the export market: oil.

"The Gulf Coast ports are very busy and very congested, and this has been the case for the last three months," Elliott says. "Brakken Shale crude and liquid natural gas is a huge driver of that traffic, so discerning the effect of the West Coast situation is difficult. It is, however, safe to say that there isn't much place else the traffic can go. We are already pretty congested here." Because few bulk grain exports move out of the West Coast ports, the threat to grain prices is limited, according to one CME Group grain trader, choosing anonymity. The grain companies in the Pacific Northwest (PNW) export facilities, a major ag export location, are not involved in this labor dispute. As of right now, grain exports are not affected at the PNW, sources close to the matter say.

Right now, South America sources are offering cheaper soybeans than U.S. sellers out of the Gulf and PNW ports, the CME Group grain trader says. “It’s sort of the end of the season for PNW grain exports. So, unless the South America shippers can’t perform due to delayed harvest activity or bogged down logistics, similar to two years ago, the farm markets will be able to skirt the damage from this West Coast dock issue,” the trader says.