Rail companies caught some heat Thursday as Northern Plains farmers and grain shippers complained to the federal Surface Transportation Board about protracted shipping delays due to perceived railroad favoritism for shipping oil versus grain.
Those voicing complaints over rail issues were divided over whether the Surface Transportation Board should use its authority to force railroads to provide equal access or preference for agricultural products. Canadian officials have taken such steps to alleviate rail delays.
The hearing before the Surface Transportation Board was an all-day event with 39 people signed up to testify on nine panels. The list included a broad array of people in agriculture. Much of the morning focused on shipping delays and lack of farm commodity movement in the northern states of Minnesota, North Dakota, South Dakota and Montana which are served by Burlington Northern Santa Fe Railway and Canadian Pacific Railway.
Farmers and grain elevators blamed the railroads for dedicating more railcar space to booming oil production in North Dakota and intermodal shipping from Pacific Northwest terminals. Burlington Northern blamed the problem on higher volumes of both grain and oil shipments last fall, coupled with extreme winter weather.
Bob Wisness, representing the North Dakota Grain Growers Association, noted oil gets the headlines, but agriculture remains the top industry across most of the state. Virtually any commodities moving out of the state travel on rail lines. Right now, grain is not moving despite a strong crop last fall.
“You have a great crop and you can’t take advantage of it,” Wisness said. He added, “We have had big crops before, but we have never had this poor of rail service.”
Wisness and others pointed out that some farmers who have been unable to sell their grain are taking out loans to cover their operating costs this spring. Not only are grain elevators sitting on tons of grain they can’t move, but they are now becoming reluctant to forward contract with farmers over fears of what could happen next fall.
South Dakota Agriculture Secretary Lucas Lentsch cited problems with spoilage and elevators that cannot accept any more grain. He said there are concerns about storage capacity once winter wheat harvest begins. Some ethanol plants have idled at times because they have filled their own storage facilities. A letter from South Dakota Gov. Dennis Daugaard expressed concern that the state could become the world’s “warehouse for grain” without better rail service. Lentsch said at least 11,000 rail cars have been delayed so far in the state and possibly more.
“We are right at the front end of a very critical need, and that’s our nutrients and fertilizer,” Lentsch told the board.
Milton Handcock, general manager of Midwest Cooperatives in South Dakota, said farmers are hauling grain as far as 300 miles to get it sold. “Producers are hauling commodities to whoever gets the next train.” Wheat and corn are seeing basis as wide as $1.70 a bushel.
Montanan Terry Whiteside, representing the Alliance for Rail Competition, said loads of wheat trains just sit idle for weeks waiting to move. Other products such as peas or lentils are losing their shipping certificates because the commodities aren’t moving fast enough. “Oil shipments have taken away capacity from grain,” Whiteside said.
Whiteside and Roger Johnson of the National Farmers Union both called on the STB to issue service orders requiring the fair allocation of rail cars. The National Grain and Feed Association’s representative said NGFA wasn’t ready to call for such orders, but the group wanted more current, published data from rail companies, such as weekly loads from states and what was being shipped.
STB Chairman Daniel Elliott repeatedly asked if rail companies are communicating with customers. Most panelists agreed communications aren’t the problem. “Yes, we are talking to them. No we are not getting anywhere,” Whiteside said.
Elliott and Vice Chairwoman Ann Begeman indicated they want to avoid an emergency service order and asked for everyone to work together to resolve the delays.
Minnesota farmer Lance Peterson, representing the American Soybean Association, noted half of U.S. soybeans are exported, mainly to China. Higher rail costs are adding a 60-cent premium to ship, which translates into millions of dollars in lost revenue for farmers.
Johnson highlighted that the Bakken oil development in North Dakota was just taking off when he was North Dakota’s agriculture commissioner in 2009. At that time, the state was producing about 200,000 barrels of oil a day. Now, it is producing about 1.1 million barrels a day.
Johnson noted some grain buyers in the Pacific Northwest terminals also assess penalties of 5 cents to 10 cents a day per bushel for late delivery. That quickly eats away profits. Johnson said railroad companies should be forced to pay for delays. He also added that constant delays in shipping grain damage the reputation of the U.S. and cause countries to look to South America for commodities such as soybeans and corn. “Along with that loss (of exports) is our reputation,” Johnson said. “That’s a really, really big deal.”
Besides delays in grain exports, fertilizer dealers are already being told not to expect their fertilizer orders to arrive on time. One dealer said he was told earlier this week by his supplier that at least one-third of his company’s fertilizer orders won’t arrive until the end of May, which is beyond the time most corn is planted.
Stevan Bobb, executive vice president and chief marketing officer for BNSF, told the board the railway has seen almost all of its shipping volume rebound from the recession but rail demand has shifted northward. He attributed that not only to Bakken oil, but also higher grain volumes due to more productions in the Dakotas and higher demand for grain to move out of the Pacific Northwest. Moreover, the rail line also is moving more intermodal products and more coal as well.
Bobb said there are signs of improvement coming out of the winter. He also said BNSF has been investing an average of $4 billion a year in locomotives, cars and line upgrades over the last four years. Bobb expressed confidence that the company could move the grain volume of the Northern Plains in the coming months.
“We will work our way through the current issues and come out of it stronger than ever,” he said. “We will have current ag demand moved and be positioned for the new crop this fall.”