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Monday, August 25, 2014

Crop problems caused by railcar shortage

by Mark Mendiola - WLJ Correspondent

— Oil cars being prioritized over grain

An acute shortage of railcars combined with a potentially large fall harvest is giving grain elevator operators in the Upper Midwest ulcers as they sweat whether they will be able to expeditiously move crops to market in the months ahead.

North Dakota appears to be the hardest hit of the northern tiered states that include Montana, South Dakota and Minnesota as they cope with the shipping dilemma. Grain elevators could run out of storage capacity during the looming harvest, requiring grain to be stored on the ground and risk spoiling.

Bob Zelenka, Executive Director of the Minnesota Grain and Feed Association, said some grain elevators unable to secure delivery have been two months behind on shipments as a result. They want to free up space for wheat, corn and beans in the fall.

“It has been pretty bad,” Zelenka told the Western Livestock Journal. “Elevators are still behind in getting the service they requested. It’s worse on Canadian Pacific (CP) Railroad than the BNSF (Burlington Northern Santa Fe) Railroad.”

Both those railroads service North Dakota’s oil country. Many grain elevator operators suspect the railroads are giving top priority to hauling large volumes of oil out of the Bakken field at the expense of grain deliveries. One oil train passes directly by an elevator each day, he mentioned.

“You can’t help but draw that conclusion,” Zelenka said, noting the additional oil trains are causing congestion in the entire rail network. “The network just can’t handle the volume at the present time.”

Extra oil shipments worsened congestion at the Chicago and St. Paul rail yards.

Canadian Pacific has been 60 days late or later in providing 110-car unit trains, and up to four months late on non-shuttles.

Crews will need to be brought in to install additional tracks and power lines to alleviate the severe congestion, which started last fall with the propane shortage.

The Surface Transportation Board has demanded that railroads provide weekly updates on turnaround times, velocities, car loadings and other metrics to help speed grain shipments. The BNSF has been more compliant and transparent in that regard than CP, he said.

“They are hoping to have all the old crop moved in time for the new crop. The spring wheat crop has already started here. We’re a month away from soybeans and corn,” Zelenka said.

Many orders have been put in for unit trains or shuttle trains with 110 railcars, but they have not been swift in arriving. Despite the delays, Zelenka said he remains “somewhat optimistic” that the problem can be resolved.

“They weren’t prepared for the volume needed. Because of the congestion, they weren’t able to address the shortage in a meaningful way,” he said.

Lochiel “Lochy” Edwards, past President of the Montana Grain Growers Association and a Big Sandy, MT farmer, chairs an Ag Rail Business Council, a coalition of businesses concerned about rail shipments. He said the railcar shortage presently is not a big issue in Montana, noting the bulk of Montana’s wheat is shipped in 110-car shuttles.

Montana growers are heavily dependent on BNSF to get their grain to market, but Union Pacific Railroad also runs a line between Dillon and Butte. A network of grain elevators heavily uses the rail system in the state.

“Grain has traded at fairly high premiums the last six months because the availability of cars is tight. One year ago it was trading at a discount,” Edwards told WLJ. “Farmers anticipate a storage capacity problem.”

The demand for grain worldwide is down, Edwards said, but a record domestic crop is expected this year, with the corn crop expected to be huge. Edwards sold his wheat in March and May. “Farmers don’t want to sell wheat for five bucks a bushel anymore.”

Montana’s backlog has been reduced from 3,500 cars past due and 32 days late on average down to 618 and about 16 days late, Edwards said. “That’s remarkable progress on past dues.” North Dakota remains the most problematic with 1,511 cars still past due.

“I think in the Northern Tier the railroads will clear the backlog before harvest,” he said. “It isn’t like nothing’s moving. There’s just a huge demand. It’s slightly above the three-year average. Every year is different.”

“Frankly, all of the railroads got caught a little flat-footed coming out of the recession. It has taken time to rehire, buy more locomotives and grain cars,” Edwards said.

“It’s really complicated for a railroad to anticipate that. A record grain crop is coming. The jury’s out on how the performance will be. The grain trade thinks the railroads will be scrambling.”

Edwards cautions grain producers involved in formulating policy to be careful about knee jerk reactions to service crises. “Be careful not to look at short-term solutions. Let the markets work. If we have a regulated transportation system, that is short-sighted,” he said. — Mark Mendiola, WLJ Correspondent

 
 


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