Tuesday, August 26, 2014
Too much of a good thing is not good
And two of those things together are worse. With all that Bakken crude to move and no pipelines in place, the railroads have their hands full moving it in tank cars. Add to that record corn and soybean crops coming in that needs to move by rail and you have an overload of the system.
Railroads have long been the backbone of North Dakota’s transportation system and the most dependable way for farmers to move crops — to ports in Portland, Ore., Seattle and Vancouver, from which the bulk of the grain is shipped across the Pacific to Asia; and to East Coast ports like Albany, from which it is shipped to Europe.The oil won't spoil but since it pays better, it is hard to imagine that grain will get any favors in this mess.
But reports the railroads filed with the federal government show that for the week that ended Aug. 22, the Burlington Northern Santa Fe Railway — North Dakota’s largest railroad, owned by the billionaire Warren E. Buffett — had a backlog of 1,336 rail cars waiting to ship grain and other products. Another railroad, Canadian Pacific, had a backlog of nearly 1,000 cars.
For farmers, the delays often mean canceled orders from food giants that cannot wait weeks or months for the grain they need to make cereal, bread and an array of other products. “They need to get this problem fixed,” Mr. Hejl said. “I’m losing money, and my customers are turning to other sources as a result. I don’t know how much longer we can survive like this.”
This month, federal Agriculture Department officials said they were particularly concerned that Canadian Pacific would not be able to fulfill nearly 30,000 requests from farmers and others for rail cars before October. As a result, North Dakota’s congressional delegation and lawmakers in Minnesota and South Dakota have called on the Surface Transportation Board, which oversees the nation’s railroads, to step up pressure on the companies.
“This rail backlog is a national problem,” Senator Heidi Heitkamp, Democrat of North Dakota, said in an interview. “The inability of farmers to get these grains to market is not only a problem for agriculture, but for companies that produce cereals, breads and other goods.”
A recent study conducted by North Dakota State University at Ms. Heitkamp’s request found that rail congestion could cost farmers in the state more than $160 million because a local oversupply of grain has lowered prices.
The study also found that farmers would lose $67 million in revenue from wheat, corn and soybeans from January to mid-April. Around $95 million more in losses are expected if farmers are unable to move their remaining inventory of crops.
The study was done before the current harvest, which is forecast at a record 273 million bushels of wheat, up from 235 million bushels in 2013. This year’s soybean harvest is also expected to be a record, and corn will be a near-record.
Food companies say they are feeling the effects of the delayed shipments. General Mills, the Minnesota-based maker of Cheerios, told investors in March that it had lost 62 days of production — as much as 4 percent of its output — in the quarter that ended in February because of winter logistics problems, including rail-car congestion. In its earnings report this month, Cargill, another Minnesota-based food giant, reported a drop in net earnings that it attributed in part to “higher costs related to rail-car shortages.”
Farmers and agriculture groups say rail operators are clearly favoring the more lucrative transport of oil. Rail shipments of crude oil in North Dakota have surged since 2008, and the state now produces about a million barrels a day. About 60 percent of that oil travels by train from the Bakken oil fields in the western part of the state to faraway oil refiners. There are few pipelines to ship it.
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