With trains so far behind schedule, some grain elevators have been waiting for supplies for more than a month, Katie Micik reports for DTN/The Progressive Farmer. "Transportation expert Jay O'Neil said this year's railroad traffic jam in the Northern Plains and Canadian Prairies resulted from a 'perfect storm' of circumstances: large crops, increased oil shipments by rail, labor issues and uncooperative winter weather. Costly congestion could become the norm during winter months, at least until railroads build new track or new pipelines take oil cars off the rails, said O'Neil, an agricultural economist with Kansas State University's International Grains Program."
As a result, some business owners are so desperate for grain, "some end-users doubled -- perhaps even tripled -- their purchases, resulting in basis bids that were $4 above futures prices for 14 percent-15 percent-protein spring wheat," Micik writes. "The going rate for a rail car in the secondary market topped out near $4,000 above tariff, or roughly $1 per bushel of corn or soybeans it carried. The demurrage charges for ships waiting off the Pacific Northwest coast keep swelling."
The problem is that "farmers harvested bumper corn, soybean and wheat crops after three years of disappointing production," but there aren't enough trains to deliver the goods, Micik writes. Instead trains are going to the oil fields. "Bakken oil production, at nearly 1 million barrels per day at the end of 2013, has maxed out pipeline capacity, leaving rail as the only option to move crude to southern refineries. State officials said up to 90 percent of North Dakota's crude could be shipped by rail by the end of 2014, up from around 70 percent now."
Railway companies are trying to make up the difference by hiring more employees, but it takes time and training to get the new crews up to speed, Micik writes. In the meantime, not moving grain is impacting business. "Very simply put, when cars were unable to move, for whatever reason, basis levels rose in 25 cent to $1 increments some days," said DTN cash-grains analyst Mary Kennedy. "When cars were available, the basis dropped by the same increments that it went up by. And the ball is still bouncing. There are other factors like protein, quality and of course demand as it relates to the hard red spring protein premiums, but it needs to get from point A to point B or it is not worth much." (Read more)