Prairie grain freight cost index to rise with fuel prices

An “expected sharp rise” in fuel costs in 2017 compared to 2016 may help raise the cap on how much money Canada’s big two railways can charge to move Prairie grain in 2017-18.

The Canadian Transportation Agency — the tribunal which, among its other duties, sets the annual maximum revenue entitlements (MREs) on Prairie grain freight for Canadian National Railway (CN) and Canadian Pacific Railway — on Friday announced a volume-related composite price index (VRCPI) of 1.3817 for the crop year starting Aug. 1.

The new VRCPI is to be applied when the CTA rules on the railways’ maximum grain revenue entitlements for 2017-18, as expected by Dec. 31, 2018 at the latest.

The VRCPI is “essentially an inflation factor” for the forecast prices that CN and CP pay for labour, fuel, material and capital purchases.

The 4.1 per cent increase in the VRCPI from 2016-17 is based mainly on an expected 3.5 per cent increase in forecast price changes for “railway inputs” in 2017-18, the CTA said.

Those expectations come mainly from a forecast for West Texas Intermediate (WTI) crude oil values to rise to US$53.70 per barrel on average in 2017, from US$43.30 in 2016, the agency said.

The VRCPI has grown at an average annual compounded growth rate of 1.9 per cent over the 2000-01 to 2017-18 period, the CTA said, tracking up and down with “exceptional fluctuations” in recent years due in part to fuel price volatility.

The CTA last April set the 2016-17 VRCPI at 1.3275, a 4.8 per cent increase from the previous year, citing recent and further expected declines in the Canada/U.S. currency exchange rate.

A weaker loonie increases the railways’ costs for materials used in “day-to-day operations,” the agency said at the time, as CN and CP pay for many of those items in U.S. dollars.

The 2015-16 VRCPI had been cut in April 2015 to 1.2517, based in part on a sharper-than-expected drop in fuel costs, but was later raised slightly to 1.2668 after CN sought an adjustment.

CN and CP in January this year were found to have exceeded their 2015-16 MREs by over $4.4 million combined. — AGCanada.com Network

VRCPI
Chicago / Reuters – Chicago Mercantile Exchange live cattle ended lower on Friday, the last trading session of the month, with pressure from uneasiness about remaining prices for remaining market-ready, or cash, cattle by late Friday evening, traders said. Spot October, which expired at noon CDT (1700 GMT), settled 0.875 cents per cwt lower at 139.250 cents, and December 1.075 cents lower at 141.725. Feedlots are holding out for $140 per cwt for unsold cattle after packers earlier this week paid $138. Last week, cattle in the U.S. Plains moved at $134.50 to $138. Processors are pushing back against paying higher prices in an attempt to recover lost margins while supporting wholesale beef prices. The average beef packer margin for Friday was negative $4.85 per head, compared to a negative $9.70 on Thursday and a positive $14.80 a week ago, as calculated by HedgersEdge.com. Friday afternoon's wholesale choice beef price was down 89 cents per cwt from Thursday to $220.04. Select cuts rose 52 cents to $212.07, the U.S. Department of Agriculture said. CME spot-November closed 1.025 cents per lb lower at 190.900 cents, pressured by live cattle futures selling. HOGS CLOSE UNEVEN CME lean hogs were pressured by eroding cash and wholesale pork values, but back months drew support from short-covering and bargain hunting, traders said. Spot December closed 0.675 cent per lb lower at 59.200 cents, and February down 0.250 cent to 62.750. April ended up 0.300 cent to 67.425 cents and May at 72.600 cents, up 0.475. Cash hog prices in the Iowa/Minnesota hog market on Friday afternoon slumped $2.10 per cwt from Thursday to $64.67, the USDA said. Separate government data showed the afternoon's wholesale pork price, cutout, had dropped $2.64 per cwt from Thursday to $78.14, led by costs for pork bellies that tumbled $12.49. Packer inventories are full into the middle of next week, and falling cutout prices come as October Pork Month draws near, a trader said. Brazilian meatpacker JBS SA has concluded its $1.45 billion acquisition of Cargill Inc's pork assets.

 

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