With a large corn and soybean harvest looming and an abundant wheat crop expected in the Northern Plains, farmers and elevators are nervous that the delay in rail car placements will continue and storage will fill up on the farm and at the elevator, forcing some to store grain on the ground. There are reports of winter wheat piles already seen in South Dakota and Montana with winter wheat harvest only 55% complete in South Dakota and 40% complete in Montana as of Aug. 3, according to USDA’s weekly Crop Progress Report.
BNSF Group Vice President for Agriculture John Miller, speaking at a meeting of the North Dakota Agricultural Rail Business Council in Mandan, N.D., on July 31, sought to reassure nervous customers. He told attendees that the BNSF will “perform better than a year ago at harvest.”
In their weekly newsletter the Red River Farm Network, Grand Forks, N.D., reported that Dan Wogsland, executive director of the North Dakota Grain Growers Association, said: “Farmers are seeing the impact of the poor rail service reflected in the cash grain bids at their local elevator. Our basis levels are way out of whack. From what I understand, the grain industry is taking some extra protection in the basis to make sure they’re covered in the case of defaults on deliveries. That all goes back to the farmer that is expecting, in good faith, that his product gets moved.”
David Fiebiger, manager at Finley Farmers Elevators, Finley, N.D., and president of the North Dakota Grain Dealers Association doesn’t agree. “The larger issue is obviously the increased freight cost that is making basis ‘out of whack,'” Fiebiger told DTN this week in an email. “What Mr. Wogsland described is elevators being prudent and trying to mitigate the additional risks that might be in the marketplace, all due to rail transportation delays. To state that the elevator manager is ‘taking extra protection’ implies that the elevator manager is padding his basis, a position I find to be a bit naive.”
In his weekly podcast of July 31, John Miller, vice president of BNSF agriculture products, said: “there has been a 26% improvement week over week” in car placements. On average, 4,066 cars were owed versus 5,182 the prior week and days late were at 19.9 versus 22.2 the prior week. North Dakota is owed 2,399 cars versus 3,230 cars owed the week prior and has been waiting 23.1 days versus 24.1 days the prior week. Montana is owed 660 cars versus 977 cars the prior week, Minnesota is owed 468 cars versus cars the prior week and South Dakota is owed 105 cars versus 240 cars owed the prior week.
US CP RAIL SHIPPERS HAVE LITTLE HOPE CARS WILL ARRIVE FOR HARVEST
In their weekly service update to the STB, the Canadian Pacific Railway reported that as of July 31, there are 22,457 requests for grain cars in North Dakota versus 23,818 the prior week and on average, cars are 11.71 weeks late. There are 7,193 requests in Minnesota versus 8,246 the prior week and on average, cars are 12.43 weeks late.
The USDA weekly Grain Transportation Report said that, “CP fulfilled only 1,186 grain car orders in the past week for North Dakota, 210 for Minnesota, and 391 for the RCP&E in South Dakota. Excluding any new requests that may occur as the 2014 harvest begins, it would take CP another 17 weeks at this rate, or until late-November, to eliminate its backlog of grain cars. By this time, the 2014 harvest will be nearly complete, and there would probably not be enough storage space for both crops, especially in South Dakota.”
Tim Luken is manager of Oahe Grain, Onida, S.D., an elevator that is located on the RCP&E railroad which relies on the CP for cars. Luken said, “I am behind 407 cars with HRW harvest not finished and spring wheat harvest is starting. I will only have space for 150,000 to 200,000 bushels of spring wheat because most of my elevator is filled with the winter wheat harvest.”
Jeff Kittell, manager at Souris River Cooperative Lansford, N.D., served by the CP said that: “We are waiting on five trains and 243 singles, all with want dates June 23 and prior. We have already posted no open market winter wheat deliveries this fall and are just taking in contract grain; no cash or DP.” He agrees with other shippers that Canada’s Bill C-30 will definitely have a negative impact on CP U.S. car placements because there are no penalties in the U.S. similar to ones in Canada for not providing timely service.
BILL C-30, THE FAIR RAIL FOR GRAIN FARMERS ACT
Canadian producers and commodity groups welcomed the Aug. 1 announcement from the federal government regarding the regulations to accompany Bill C-30, The Fair Rail for Grain Farmers Act.
DTN Canadian Grain Analyst Cliff Jamieson said: “The Order in Council which had set minimum weekly volumes for each of Canada’s two railroads since March was extended until November 29, while was also increased to 536,250 mt for each railroad on a weekly basis, up from the previous 500,000 mt, with financial penalties in place for failure to meet this volume. In addition, the bill requires an increased, more timely flow of data from the railways, increases competition between railways with increased inter-switching distances, as well as sets a framework for arbitrating service-level disputes between shippers and the railways as well as contract issues between producers and grain handlers.”
“As can be expected,” said Jamieson, “the railways are not happy.” Claude Mongeau, CEO of CN Rail, Canada’s largest railway, said, “As there are no structural problems to fix, there is no need for such burdensome and ill-advised regulatory intervention,” and “the government’s approach can only stifle supply chain collaboration and may ultimately undermine investment in the rail sector.” Hunter Harrison, CEO of CN Rail, stated the legislation is “disappointing” and “is very unfortunate and clearly demonstrates that despite the facts, this government has not listened.” Jamieson added, “Meanwhile, industry waits for feedback from a number of level-of-service complaints against the railways which have been filed with the Canadian Transportation Agency.”
Jamieson said that regardless of the Canada regulations, the Canadian railroads are not hurting. “CN’s latest financial results show record volumes moved in the three months ending June 30, revenues increased 17% (revenues for grain and fertilizer increased 35%) and net income increased 18% from year-ago levels to $847 million. Their share price is currently at $71.90 C$, up 19.3% this year. CP Rail also achieved a record quarter, with revenues up 12% and net income up 48% on an earnings per share basis. CP trades at $205.03, up 28.5% this calendar year.”