Rail shipping is back on track

Farm Forum

LAKE CRYSTAL, Minn. — Last year grain elevators, ethanol producers and others were frustrated by a shortage of rail cars and long delays in shipping their products. And analysts predicted the backups would stretch out for years.

But now, with a decline in oil prices, an anemic export market for grain, a snowless December and beefed up staff at railroads, rail service is back on track.

“I think the way it’s going, the railways may be out looking for business pretty soon,” said Jeff Spence, grain division manager, for Crystal Valley Co-op in Lake Crystal.

At the peak of the rail delays last summer, analysts and rail officials cited several reasons for the problems. The shale oil boom in North Dakota offered a more lucrative commodity for trains to haul and diverted capacity from other uses. Last winter’s harsh weather, a glut of grain in storage and a reduced number of rail staff and new cars also combined to back up deliveries.

The University of Minnesota released a study over the summer that estimated Minnesota corn, soybean and wheat farmers lost nearly $100 million because of rail delays.

Spence said several events have caused the change in rail service. “December was mild and there were no big snow storms to slow things down. And our grain exports haven’t been great so there hasn’t been a lot to ship.”

And while oil production in North Dakota averaged 1.1 million barrels per day in 2014, it has begun to slow as prices have fallen.

“With the oil prices dropping, the fracking boom may be slowing,” Spence said.

While more rail cars are available, there are fewer markets to deliver grain to.

Even though grain prices are at their lowest point in years, exports have lagged, in part because a lot of grain was stored up in the past couple of years and partly because of good crops in other countries.

“China had a big corn crop and they’re not buying much. Mexico had a decent corn crop so they haven’t been buying as much. Brazil had a big year and is exporting grain cheap and Ukraine was exporting corn cheaper, even with the war there,” Spence said.

He said much of the grain in the western half of Minnesota is shipped by rail and often ends up in the Pacific Northwest for exports while much of the grain in eastern Minnesota goes down the Mississippi River by barge.

“A lot that goes down the river to the Gulf goes to Europe, but some to Asia,” Spence said.

According to Minnesota Public Radio, railroad officials credit record spending on locomotives, crews and new track for much of the relief on the stressed rail system. Still, railways are still reporting some cars arriving late for their scheduled destinations, but the late times are down by half from this spring.

Mike Steenhoek, executive director of the Soy Transportation Coalition, which represents farmers in 12 Midwest states, said the lack of delays is a relief.

“We’re seeing overall favorable rail service across the four states,” he told MPR. “We’ll see over the next few months whether that quality service is remaining constant or if we find ourselves back where we were earlier this year.”

Steenhoek said 70 percent of grain handling facilities surveyed report railroad service is faster than it was a year ago and 48 percent currently have no past due rail orders.

But some analysts said the first part of 2015 could test the rail system. Many farmers who have held onto their grain because of low prices may be forced to sell and ship it in order to meet loan payments. And if the winter turns harsh, rail service would also be slowed.