A severe rail transportation backlog has placed downward pressure on U.S. grain prices, delayed commodity shipments and raised freight costs, industry experts say.
Montana rail consultant Terry Whiteside said the most serious problems have occurred throughout the Burlington Northern Santa Fe Railway’s Hi-Line route, which runs from Minneapolis to Seattle. The route passes through Northern Idaho and Spokane, Wash., where grain is routed to Portland, Ore.
The transportation challenges began last summer, said Whiteside, who works for commodity groups including the Idaho Barley Commission, Idaho Wheat Commission, Oregon Wheat Commission and Washington Grain Commission.
“Right now we have one of the most serious service meltdowns we’ve seen in 20 years,” Whiteside said. “The reality is it’s costing a fortune for farm producers.”
Whiteside said most analysts attribute the delays to increasing demand for tank cars in the North Dakota oil fields.
According to a December 2013 Association of American Railroads report, rail shipments of crude oil have skyrocketed in recent years as the U.S. is experiencing “an unprecedented boom in oil and natural gas production.” The report indicates crude oil carloads originating on U.S. Class I railroads increased from 9,500 in 2008 to 234,000 in 2012 and 400,000 in 2013.
“That’s why people are pointing the finger at oil. That was a new phenomena,” said University of Idaho Extension economist Paul Patterson.
Patterson said the rail situation was compounded when wheat farmers moved to sell grain to capture a recent price uptick.
Regionally, Whiteside said rail cars are now fetching a $3,000 premium compared to mid-January. Montana Wheat & Barley Committee board member Leonard Schock, a Vida, Mont., farmer, said in January, Northeast Montana growers were getting 42 cents over the May futures rate in Minneapolis for their wheat. Their return has since dropped to 60 cents below the Minneapolis price, a swing of more than a dollar that he attributes to escalating rail costs.
Schock said a 27-car train that was due at his grain elevator during the first week of January was finally expected to arrive to haul spring wheat on April 9.
In response to a petition the Western Coal Traffic League filed regarding delayed rail shipments, the federal Surface Transportation Board scheduled an April 10 hearing on the issue.
BNSF spokeswoman Amy Casas said crude oil represents 4 percent of the railroad’s total traffic. Casas said extreme winter cold forced BNSF to run shorter trains to maintain adequate airbrake performance, and demand was up sharply across many classes of freight. She said the railroad has brought in extra crews, locomotives and equipment to reduce past-due orders and “we do expect to recover.”
BNSF also plans to spend $900 million on expansion and maintenance of its Northern Corridor as part of a $5 billion 2014 capital plan, she said.
U.S. Wheat Associates spokesman Steve Mercer said his organization has monitored the situation, and shipping to overseas customers has remained reliable.
“The big issue in this is really domestically and its impact on farmers,” Mercer said.
Canadian railroads are also behind schedule, leading the country’s government to impose fines if minimum grain shipments aren’t met. Due to the rail backup, Whiteside fears Canada’s grain storage won’t be empty in time for this season’s harvest.
Idaho Barley Commission Administrator Kelly Olson said some Idaho facilities, such as Great Western Malting in Pocatello, have benefited from extra business as Canadian grain remains inaccessible. Eventually, Olson said Canada’s grain will move, and the influx could be akin to an extra harvest, placing downward pressure on prices.
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