Nov. 4 (Bloomberg) -- Record crops in Canada, the world’s top canola grower and second-largest wheat exporter, are overwhelming the country’s rail system, creating a shortage of grain cars and slowing shipments to foreign buyers.
The nation’s two major carriers, Canadian National Railway Co. and Canadian Pacific Railway Ltd., are each providing about 5,000 to 5,500 cars a week to move grain at a time when companies need more than twice that amount, said Wade Sobkowich, the executive director of the Winnipeg-based Western Grain Elevator Association, which represents grain-handlers including Cargill Inc. and Glencore Xstrata Plc’s Viterra unit.
“It’s not enough,” Sobkowich said in a telephone interview from Winnipeg. “It’s sort of a typical amount for an atypical crop year. That’s part of the problem. There doesn’t seem to be any consideration for increased demand.”
Harvests this year across the Prairie provinces of Canada will jump 14 percent to a record 80.8 million metric tons, the government said Oct. 16. The supply surge is eroding prices and testing the limits of domestic storage. About 95 percent of the nation’s export grain is shipped by rail, according to the Western Grain Elevator Association.
CN Rail, based in Montreal, is delivering about 5,500 cars per week to grain elevators, the most in the company’s history and 15 percent higher than the five-year average, Mark Hallman, a spokesman, said in an e-mail. Adding more cars to the supply chain will cause backlogs at ports, he said.
“It’s like morning rush hour on a freeway,” Hallman said. “You put too many cars on the road, the road plugs and everyone slows to a crawl. It’s no different with the grain-supply chain. Cars get to the port, can’t get unloaded, and sit.”
CP Rail, based in Calgary, Alberta, planned to deliver 5,049 cars to move grain the week of Nov.4, or 32 percent of the total orders, according to a service report on its website. There was a total of 8,091 outstanding grain-car orders for CN Rail, according to a Nov. 1 report posted on its website. The two companies own the majority of the nation’s rail lines, Sobkowich said.
CP Rail is increasing train lengths where possible to move more of the crop with each shipment, spokesman Ed Greenberg said in an e-mail. The company moved 317,000 carloads of grain in the first nine months of 2013, up from 311,000 in the same period a year earlier, he said.
Prices for wheat, Canada’s biggest crop, fell 23 percent in the past 12 months to $6.6775 a bushel on the Chicago Board of Trade and canola in Winnipeg slid 20 percent. Grain and oilseed prices are forecast to average as much as 30 percent lower in 2013, the Canadian government forecasts.
Record harvests in Canada and the U.S. may increase rail demand by 2 percent to 3 percent over the next 12 months, Barclays Plc said in a report. Bumper crops will mean improved railway earnings, including more than 4 percent boosts for Canadian Pacific and Kansas City Southern in 2014, the bank said.
The lack of rail capacity leaves farmers unable to cash-in and market crops when they want to, Kevin Hursh, the executive director of the Inland Terminal Association of Canada, said in a telephone interview from Saskatoon, Saskatchewan.
“If you wanted to sell some of the major products you pretty much have to bide your time, and make a forward sale,” Hursh said.
There were 20 vessels waiting for grain in Vancouver and five ships waiting in Prince Rupert as of Oct. 31, said Mark Hemmes, president of Edmonton-based Quorum Corp., which monitors Canada’s grain-transportation system. Some ships are idling because the rail cars with the crops haven’t arrived yet, he said.
“We’re in trouble,” Hemmes said in a telephone interview. “We’re behind where we were last year in terms of the amount of tons we shipped out of the country.”
It costs between C$3,000 and C$15,000 a day to have a ship waiting in port for grain, Jason Skinner, the chief executive officer of North West Terminal in Unity, Saskatchewan, said today in an interview. The terminal has one ship in Vancouver that has waited at least five days for grain, he said.
The difficulties moving the crop may “get worse before it gets better” because cold weather and snow can disrupt rail service, Collin Hulse, a senior risk-management consultant for INTL FCStone, said today in a presentation in Saskatoon, Saskatchewan. Ports are pretty much booked, he said.
“Railways in general seem to have more issues when we have cold weather,” Hulse said.
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