This year’s grain crop might not be as big as last year’s bin-buster, but there’s still going to be “heavy demands” on the rail transportation system this winter.
“The initial projections from Stats Canada for the 2014 crop are 57 million tonnes in western Canada — still a very large crop,” said Bruce McFadden, director of research and analysis at Quorum Corp., Ottawa’s grain monitor.
“This year, we’ve still got 73 million tonnes (including carryover) to move, which would make it the second largest overall volume that has to be moved out of western Canada. It’s still a lot of pressure on the system.”
That prompted Ottawa to issue a new order-in-council setting out mandatory minimum weekly grain movement this winter — a move cheered by many, but not all.
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“Many producer groups and the Western Grain Elevator Association indicated they’d like to see the thresholds maintained, but there’s other parties who feel the unintended consequences of those thresholds have had a serious negative impact on their business,” said McFadden, citing short lines and special crops shippers, which have had a hard time getting rail cars.
But even with Ottawa’s mandatory minimums, volumes have been tailing off since the start of the new crop year on Aug. 1, he said.
“At the end of August, the railways were 57 per cent higher in terms of the movement out of the primary elevator system,” said McFadden.
That figure was skewed because in August 2013 supplies were “exhausted,” whereas there was plenty of grain to move this summer, he noted. Nevertheless, performance in September and October has been just “marginally better” than the same time last year, said McFadden.
“We’ve gone from being 57 per cent ahead of last year to 27 per cent at the end of September and only 18 per cent ahead at the end of October,” he said.
Still, it’s not all bad news for farmers looking to move grain, he said. The balance between stock in country elevators and port terminals is “a lot better.”
“Last year, we had 3.5 million tonnes in the country system. This year, we’re running at about 2.5 to 2.8 million tonnes,” said McFadden. “There’s a lot of grain there, but there are delivery opportunities throughout the prairies.”
West Coast terminals are gearing up for a busy winter, and most have sold out their “capacity” — the amount of grain they can handle — well into spring. Terminals can actually move more grain than their capacity, but that depends on the timely arrival of grain cars and so the terminals are shying away from taking on more business, said McFadden.
“The demand is there. The markets are there. They would like to be able to handle more,” he said. “But at this point, until they have some confidence that there will be the rail transportation to get it from the country to them, they’re reluctant to increase those programs.”
Regaining that confidence could be an uphill battle, though. Last year’s record crop “brought into focus a systemic problem” with the rail transportation system, said McFadden.
“This really isn’t just a problem that was faced last year because of the large crop and the cold weather,” he said. “These are issues with the kind of capacity that is available for moving grain and probably all commodities.
“When any disruptions take place, there’s just no ability to recapture any of the lost capacity.”
And there’s very little appetite within the railways to increase capacity, said McFadden.
“We’re in an environment where the railways are really focused on their operating ratio, and shareholder returns are the real focus of railway management right now,” he said.
“These are really long-term big-dollar capacity decisions. In the current investor-focused environment, there’s some disincentives to making those decisions.”