Ag traffic- Railroads' ace-in -the-hole?

Trains Magazine General Discussion
1

I live in the middle of corn & bean country. A majority of the traffic coming through town is ag or ag related. This week I’ve seen 3 grain unit trains come through. This afternoon, an ethanol unit train was assembled and shipped out. With total carloads being down from last year, is America’s home-grown industry keeping pace?

2

Short version: “Keeping pace” with the decline ? Yes. Making up for it ? No. (sorry)

Some examples of “Carloads Originated” for the 22 weeks of this year from the AAR report for the week ending June 6, 2009, at:

http://www.aar.org/NewsAndEvents/PressReleases/2009/06_WTR/~/media/WTR_061109_week2209.ashx

  1. Grain -24.0 %

  2. Farm Products, Ex. Grain -32.4 %

  3. Grain Mill Products -9.2 %

  4. Food and Kindred Products -14.1 %

  5. Chemicals - 17.4 %

  6. Petroleum Products - 15.5 %

(not sure in which of these last 2 - if either - ethanol is included)

More links for the data:

http://www.aar.org/NewsAndEvents/PressReleases/2009/06_WTR/061109_Traffic.aspx

http://www.aar.org/NewsAndEvents/WeeklyTrafficReport.aspx

Murphy, your questions usually lead to something interesting, and this continues to fit that mold. As a result, I now see that the AAR has started issuing a publication it calls “Rail Times Indicators”, which is a 15-page “non-technical summary” (their description) of all kinds of economic data, as follows:

AAR Rail Time Indicators Report

Rail Time Indicators, a monthly report issued by the Association of American Railroads (AAR), provides rai

3

Personally, I think any business activity that can be generated today is an ace in the hole.

It is picking up now, but the first quarter was brutal, just brutal.

ed

4

The way I see it, a man could put off building a house, buying a new car, or purchasing cheap carp from China. But, folks gotta eat. Wouldn’t ag traffic, at least domestic ag traffic, be less prone to cycles? Economically, ag is one of our healthier industries, wouldn’t you think?

5

  1. Seasonal cycle (harvests)

  2. Multi-year cycles – sellers build up inventories in good harvest years when prices are low, and sell in lean harvest years when prices are high.

  3. Buyers do the opposite.

  4. Grain can’t pay high freight rates, so when times are good other commodities such as iron ore, copper concentrate, bauxite, coal, rubber, out-compete grain for the bulk bottoms. When times are bad the bottoms come looking for grain.

  5. A great deal of grain goes into manufacturing things such as ethanol and other industrial chemicals that are used for things such as plywood resins, countertop resins, lubricating oils, glues, wallboard, packaging materials, etc.

  6. A great deal of grain is used for animal feed – when times are poor, people eat a lot less meat.

  7. Less than 12% of the corn crop ends up in direct human consumption as fresh corn, corn sweeteners, corn meal, etc.

  8. Even less of the soy crop ends up in direct human consumption.
    RWM

6

Ag - as a “consumer staple” - being less prone to cycles ? Yes.

But immune or contra-cyclical ? No.

That’s why “8. Food & Kindred Products” is down, but only by 14.1 % because “folks gotta eat”, and likewise “7. Grain Mill Products” is down only 9.2 %, whereas:

For the house:

  1. Lumber & Wood Products is down 38.6 %

  2. Crushed Stone, Sand & Gravel is down 21.5 % and

  3. Nonmetallic Minerals (cement for the concrete ?) is down 29.1 %

For the new car:

  1. Motor Vehicles & Equipment (new cars) is down 50.6 %.

Likewise:

  1. Metallic Ores is down 57.3 %

  2. Metals & Products is down 57.2 %

But as we would expect, another less-cyclical economic “staple” - 4. Coal for the power plants, etc. - is only down 8.6 %, less than foods and grain products as above.

  • Paul North.
7

I wouldn’t get too wrapped around the axles reading too much into these weekly reports, even on the quarterlies. There’s lots of other things going on at any given time. Many of these commodity groups are very long-lead… Right now, for example, power plants are building up enormous inventory, so that slight fall off in coal traffic so far is unsustainable. Also right now, China and some other countries are stockpiling grain.

RWM

8

[(-D] But point well taken - we share the same concern - which is why I was using the cumulative figures for the first 22 weeks of this year (= 0.42 year), through June 6, 2009, not the weekly figures. I stated that in my first post in this thread above), but did not repeat that qualification in the post immediately above, so this is understandable.

Nevetheless, I quickly compared them with those for the latest week only - week 22 for the categories that I cited. Interestingly, most are within 1 % to 2 % of each other - the largest difference is 2.5 %. Nevertheless, I draw no conlcusion from that - the data is far too volatile, as a review of the charts in the Rail Time Indicator report will show.

Interestingly, just last week the AAR’s report for the W/E May 30, 2009 (at:

http://www.aar.org/NewsAndEvents/PressReleases/2009/06_WTR/060409_Traffic.aspx )

had this headline and sub-headline:

Rail Traffic Down Sharply in May

Lower electricity demand and higher coal stockpiles result in double-digit declines in rail traffic

For that week alone (Week 21), coal was down 15.1 %, but still only 8.6 % on the year-to-date over last-year-to-date.

We all know the maxim about “lies, damned lies, and statistics”, so I’l leave this analysis go with that concluding cautionary note.

  • Paul North.
9

http://www.bnsf.com/investors/presentations/pdf/1Q_2009_Presentation.pdf

First quarter results for BNSF… scroll to page 20. Unless rates have gone up, ethanol traffic is up.