Delayed rail shipments: A perfect storm for grain shipments
By Sara Wyant
© Copyright Agri-Pulse Communications, Inc.
WASHINGTON, March 12 2014 - U.S. wheat farmers are finding it increasingly difficult to find rail transport for their crop, a squeeze brought on by increased competition from oil and coal shipments, a bumper grain crop, an improved economy that is jacking up the amount of consumer goods being shipped, and a freakish run of extended cold weather conditions not seen in years.
BNSF Railway, a principal rail carrier in the Midwest and Northwest, says cold weather has resulted in an average shipment delay of 15.4 days.
“It's been a perfect storm,” Bing Van Bergen, immediate past president of the National Association of Wheat Growers and a Montana grower, told Agri-Pulse Tuesday. “These delays are a real concern for wheat growers.”
A report released last week by the Western Organization of Research Councils (WORC) says a decline in coal use in the U.S. will result in an exponential growth in coal shipments to the Pacific Northwest, where it will be shipped to Asian markets. That growth, the report contends, could force the expenditure of billions of dollars in taxpayer money to upgrade rail infrastructure to handle the increased coal volume, with potential to squeeze out wheat shipments even more.
But Van Bergen, who suggests the WORC report is intended more as a political critique from environmental interests targeting the sale of coal to developing countries, says wheat is not the only commodity caught in the current rail slowdown.
He said the explosion in recent years of oil from the Bakken formation, a 200,000-square-mile area underlying parts of North Dakota, Montana and extending into Canada, has produced quantities of oil unthinkable only a few years ago. Concerns over greenhouse gas emissions, as well as a meteoric rise in the use of natural gas, has dropped the sale of coal in the U.S., prompting mining companies like the U.S.-based Peabody Energy, the world's largest coal contributed to the delays, which have been compounded by cold weather conditions that reduce both the length and speed of transport trains.
“Did BNSF get it right in their estimates of oil they'll carry? Probably not. The same could be said about coal,” Van Bergen said. “But they are aware of the problem and they are trying to rectify it.”
The extreme winter weather has been particularly troublesome in Canada, where wheat growers harvested a crop 50 percent larger than last year's, but now have to send it south to the United States because rail transport east and west has been severely hindered. The country's transport and agriculture ministers last Friday gave Canadian railroads four weeks to meet minimum weekly volumes of grain they must transport or face fines of up to $100,000 per day.
Van Bergen said U.S. wheat growers need to be patient with BNSF, noting that a briefing the railway held with him and other agricultural leaders in Dallas three weeks ago indicated the transport company is making a commitment to improving service. He said BNSF detailed for the ag leaders a 2014 capital expenditure campaign of $5 billion aimed at increasing transport capacity for all commodities.
“BNSF knows that if they don't do this, they lose money on all commodities,” the NAWG official said.
John Miller, vice president for agricultural operations at BSNF, said in a recent Open Mic session that the capital commitment plan includes $1.6 billion for new locomotives, cars and equipment, and $900 million for the company's largest expansion ever, including double tracks and new sidings, that will be built mostly in the U.S. Northern Corridor, including heavy agriculture areas in wheat-rich North Dakota.
“Our service has not been up to our customer's expectations or our own,” Miller said. “We know that. We understand that. We're working very hard to get back to the level of service all of our customers expect from us.”
Lockheil “Locky” Edwards, a former president of the Montana Wheat Growers Association and the chair of a joint business council made up of national ag leaders and BNSF officials, said he believes all the transport issues of recent months can be resolved with warmer weather.
“Farmers have been pretty patient,” he said. “If they have to be out there feeding their cows in 40-below weather, they understand equipment is going to slow down and freeze up.”
Edwards, who dismissed the Canadian government's efforts as attempting “to legislate the physics of moving trains in cold weather,” said the wheat industry here “is working very hard to make sure BNSF is as fair to the grains market as it is to all other markets it serves.” But he said weather in the northern wheat states is turning warmer and he believes that rail service will improve and most of the wheat now being held will be shipped before the next harvest.
Edwards acknowledges that the shipping delays will deprive wheat farmers of needed cash and will cause logistical complications in their day-to-day operations. But he is optimistic the pain will be relatively short term.
“I think we'll work our way through the pile. I really do,” he said.
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