April 9 (Bloomberg) -- Canada’s grain backlog is easing for the first time this season after the government ordered railways to increase shipments.
The number of outstanding rail-car orders dropped 12 percent to 68,802 as of April 6, from 78,154 a week earlier, said Mark Hemmes, president of Quorum Corp., an Edmonton-based company appointed by the federal government to monitor Canada’s grain-transportation system. The decline signals railways are responding to federal legislation that requires them to clear the backlog of grain stuck on the prairies, he said.
Agriculture Minister Gerry Ritz and Transport Minister Lisa Raitt introduced legislation last month that will let the government set minimum volume requirements for grain shipments. The backlog left as much as C$20 billion ($18 billion) of crops stuck on prairie farms. An order effective March 7 stipulates that Canadian National Railway Co. and Canadian Pacific Railway Ltd. are each required to ship 500,000 metric tons of grain each week or face penalties of as much as C$100,000 per day.
“It’s very obvious the railways are reacting to it and are moving this product,” Hemmes said in a telephone interview.
Farmers collected more wheat and canola than ever in 2013, and supplies from multiple crops in the same season placed unprecedented pressure on rail lines that handle 95 percent of Canada’s output.
Canadian National was keeping up with demand until the worst winter in more than a century hampered the movement of commodities, Chief Executive Officer Claude Mongeau said today at a Winnipeg Chamber of Commerce event. The Montreal-based shipper boosted car allocations when the cold weather lifted in March, and not because of the government order, he said.
The legislation is a “bad policy made in the heat of the moment” to punish railways in a year when harvests surged, according to Mongeau. Grain elevators are ordering more rail cars than the system can handle and should be subject to regulation, he said.
The current rail capacity “cannot move these extraordinary volumes over this short period of time,” Canadian Pacific’s Chief Operating Officer Keith Creel told a federal agriculture committee in Ottawa April 1.
The outstanding rail-car orders mean 6.1 million tons of grain are still waiting to move by rail, Hemmes said. There is probably an additional 30 million tons sitting on farms, and demand for rail cars may grow in the coming weeks if companies start to make new sales, he said.
“We’re seeing some increased movements,” said Wade Sobkowich, the executive director of the Winnipeg-based Western Grain Elevator Association, which represent handlers including Glencore Xstrata Plc’s Viterra unit and Richardson International. “We still have a huge backlog that we’re trying to clear out.”
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