Exclusive Report: Will Train Troubles Derail Harvest?

Exclusive Report: Will Train Troubles Derail Harvest?

As harvest approaches, farmers need options if railroads can't deliver

Lance Peterson made $40,000 less income in 2013, but it wasn't for poorer-quality soybeans. Inadequate rail service drove up the cost per railcar by thousands of dollars, and grain processing companies could no longer absorb the higher costs themselves.

A soybean farmer in Underwood, Minn., Peterson projects losses this year to be over $100,000.

Peterson is not alone. The high cost of rail freight, coupled with service disruptions last winter, have farmers worried, with harvest nearly at their doorstep. Illinois farmer Paul Jeschke says his corn and soybeans will go to elevators that will load them into containers for shipment to Asia or onto barges that will go to export points at the Gulf.

The high cost of rail freight, coupled with service disruptions last winter, have farmers worried about harvest options this fall.

"I am always watching all the markets available to me, and if they [rail] would become the best bid in the future, I will definitely be selling some to them," says Jeschke, who several years ago shipped 90% of his crops by rail. "But that has not been the case for several years and doesn't appear likely to happen in the near term because of the demand for power and cars by the oil industry."

Competition for track space has made shipping by rail expensive, resulting in lower prices paid to farmers. In June, corn going from central Illinois to barge markets on the river paid at least 10 cents a bushel better than railing it to cattle feedlots near Hereford, Texas.

The delays in rail service last winter put new attention on the reliability of the railroads. Farmers worry the disruptions could reoccur this fall when big crops will need to be moved.

"There is going to be continued massive demand from the oil fields for power," says Darrin Anderson, a North Dakota corn farmer.

Related: Rail Car Shortage Impacts All Levels of Ag

The railroads blamed the delays last winter on frigid cold that slowed and shortened trains, and on increased shipping of oil, grain and coal. Farm groups, however, say railroads gave priority to oil cars coming from North Dakota's Bakken fields, an allegation BNSF Railway denies.

Railroads have said they will do better. BNSF, the largest grain hauler, is spending billions to add track, crews, locomotives and cars.

However, improvements won't happen overnight, says Frayne Olson, marketing specialist at North Dakota State University. North Dakota farmers lost nearly $67 million in revenue from January to April because of late trains, according to a study by Olson.

What to do if troubles persist >>

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Rail car shortages caused all sorts of problems for farmers last fall, and the trouble may continue with a big harvest ahead. If rail car shortages persist, some farmers may need to consider other options this fall.

You may need to haul grain longer distances by truck to livestock or poultry farms, cater to ethanol plants and barge markets, find elevators that load shipping containers bound for Asia, and adjust grain delivery schedules to accommodate local elevators — all moves that can reap benefits, say grain industry experts.

Ethanol production has more than doubled in less than 10 years to nearly 13.7 billion gallons, with most of that increase in the Midwest. These plants typically hold enough grain on site for seven to 10 days of production, so they frequently restock by truck or rail at prices competitive with livestock and export markets.

University studies have shown ethanol plants support corn basis bids within 100 miles of the plants.

Shipping grain to Asia in containers has become a niche market. These 20- to 40-foot metal boxes come from Asia filled with consumer goods and are sent backfilled with corn, soybeans or dried grains. They have become so popular that agribusiness giant Archer Daniels Midland recently opened a huge container facility at its headquarters in Decatur, Ill.

About 8% of U.S. grain exports are via containers, and in December containerized grain shipments to Asia were up 78% from the previous year and up 73% from the four-year average, according to USDA.

Not all grain elevators are equipped to load containers. Location is important, as container houses are typically within 100 miles of an intermodal yard that loads them onto railcars.

Related: Another Hearing Ordered for Northern Plains Rail, Grain Transport Issues

Lately, higher rates for containers  have made barge markets a better option than containers, says Todd Tesdal, manager of the Grainco FS elevator in Ransom, Ill., which can load trains, trucks and containers.

"When demand is good for containerized grain, the bulk and rail market have a difficult time competing," says Tesdal. "Currently, containerized grain demand is the lowest I've seen in six years due to fees that were raised once again on March 1. The processor market has been king for beans since March 1."

Shop around >>

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In rural areas served by a number of elevators, farmers need to shop around for prices and delivery options.

"At times some elevators have better bids than others," says Frayne Olson, marketing specialist at North Dakota State University. "Farmers need to be more in tune with what is going on with the elevator."

Talk with elevator managers to coordinate grain deliveries. Do not deliver wheat to an elevator that is preparing to load a train with corn.

"Have a better understanding of their issues when it comes to grain flows. That can be a win-win situation," says Olson.

The Andersons, an Ohio-based grain merchandiser, say farmers should be looking at a variety of marketing options because rail rates quoted in June in the secondary market for harvest-time delivery signal another difficult year to ship grain by rail.

"The market expects the issue to persist and to be relatively severe," says Jim McKinstray, vice president for merchandising in The Andersons' grain group.

As a precaution, McKinstray advises farmers to use other rail lines if possible, market corn to ethanol plants, use more trucks, change crop marketing plans by selling earlier, or sell crops via the futures or options markets.

"So far, the market does not expect this issue to go away completely," he adds.

TAGS: USDA
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