Being an election year, and living in a farm state, we’re hearing a lot right now about the railroads inability to move grain instantly and cheaply. I keep reading about congestion, car shortage, increased oil traffic pushing the grain to the back seat, etc… In a capitalist economy, isn’t this just a classic case of supply and demand? In which case, the cost for rail shipment would rise, allowing the railroads to afford more capacity?
In theory this would be true. Since you live in a farm state, I’m sure that you’re quite aware that this just isn’t going to happen. As soon as rates rise based on increased demand, the farmers are going to run to Congress demanding that rates, car supply, etc. be regulated.
Paul - They can run to Congress all they want right now since it is in recess until mid-November. Meanwhile a roast for two will run about $15-20. Relief won’t come very fast that I can see. So why the big jump now?
Mookie - I think it is the wholesalers and retailers anticipating an increase in price. The same as when oil goes up $50 a barrel and the gas price at the local station goes up the next day or week. [2c]
… And in a related story AAR carloading figures just released show that grain carloadings YTD are 19% above 2013 levels for US roads and 17% above 2013 for Canadian roads.
https://www.aar.org/newsandevents/Freight-Rail-Traffic/Documents/2014-09-04-railtraffic.pdf
I see a lot of basic price inflation in groceries. If it seems surprising, it is only because we are being told that inflation is minimal. Not only are grocery prices rising, but the quality is dropping as another response to the supplier cost pressure.
I was told by somebody the other day to expect an ag recession next year because Minnesota has had the largest corn crop in history, and that will drive down the value. But then there is the issue of whether the railroads can move that record crop without driving up the cost of corn to the food producers.
Was 2013 an average year, or a down year to compare to? Just curious.
2013 was a record crop year. Unfortunately, with the economy in rebound and increased oil shipments thru North Dakota, the railroads quickly exceeded capacity as the winter slowed things down. The railroads are scrambling to catch up and certainly will feel the crush of this year’s record corn crop again.
I keep asking Congress where the trucks are that use the free highways that nearly put the railroads out of business. The farmers are complaining because the rails have become so efficient that their rates are hard to beat.
The railroads have hired crews and bought more equipment and are double tracking where they can, but it will take them years to catch up.
Last year the corn crop was 13.016 billion bushels – a new record. The USDA is estimating now that this year will be 14.395 billion.
The biggest corn user is the ethanol producer at 37% of the crop. The corn typically arrives at the plant by truck but the ethanol leaves by rail. The EPA is considering a rule change that would decrease ethanol usage. If adopted, this would mean that even more of the corn crop has to leave farm country by rail.
I really don’t think there is going to be any short term relief from situation as I suspect the ability of the farmers to produce still is increasing faster than the rail capacity to move it.
Locally, we have a siding that usually contains a unit train – 3 engines and more than 100 covered hoppers – awaiting a crew. On bad days, one unit train will be in the siding and another sitting on the main. I suspect the average dwell time in that siding is close to 24 hours.
Strikes to the heart of the matter. Thirty years ago, as a reporter, I did a story on some small elevators that were making a lot of noise about losing their branch line. One manager confessed (rather sheepishly) that he hadn’t shipped by rail for years. Trucks were good enough to haul his grain 500 miles or so to the Twin Ports. I guess he just wanted the railroad available for backup.
Now, it’s true, most Upper Midwest production seems to go to the West Coast, a rather longer haul. The elevators (and farmers) go there because the rails give them a good rate in return for that longer haul. If they don’t like the service, there is still the Twin Ports, among other options.
But the elevators (and farmers) are like most of us; as Baltimore Orioles manager Earl Weaver once explained to an umpire, in the heat of argument: “All I want is my fair advantage!”
Where is that? Elk Point / Jefferson area?
From what I read in the papers there’s an interesting situation west and north of Chicago. First, I’m reading about grain being dumped on the ground because of a lack of car availability; second, endless trains of oil are moving east; third, taconite ore stocks at steel mills are threatened by the railroads being so clogged with traffic from gain and oil.
You have to hand it to Warren Buffet. I wish I had bought BNSF myself, taken it private, and could, like him, watch the profits that must be rolling in. Instead, I took his advice about buying a position in an indexed mutual fund and am having a year almost as good as his.
There is an old Milwaukee Road switch yard at North Sioux City. When they bought the line from the State of SD, BNSF rerailed the track most distant from the main and extended it considerably. They also installed plumbing under a cross street so that a long train can be cut and remain on air. Technically, the siding is within the Sioux City yard limits although perhaps 10 miles from the BNSF switch yard. BNSF uses that siding to store trains because if they go into the Sioux City switch yard, they will face a mile backup move across city streets to be wyed to continue their trip geographic south to Lincoln NE.
NKP Guy: It is normal for crop to be stored outdoors temporarily during the peak of harvest season. Locally, we have three outdoor concrete pads at the elevator as an addition to their silo capacity. Each pad is almost the size of a football field. By November they will all have a pile of corn 30 or so feet high. This year that is not going to be enough capacity, so more will have to be improvised. Some of that corn may go to local animal feeders, but the bulk of it will leave by rail.
Unfortunately the free market system hasn’t been viable in the US for over 150 years. Thats why the trans con roads were given so much land, and why they are regulated today.
It’s not a matter of shipping instantly, it’s getting LAST YEARS crop out of the elevators, to make room for this years crop. While out door corn piles are a short term norm, It’s usually late in harvest, after the elevator is full. Now I’ve heard of elevators piling last years corn outside before harvest, to make room for this years crop. New (wet) corn has to be dried before you even have a hope of it lasting in an out door pile.
As to the trucking question, the cost to truck a load of corn from the dakotas to the pnw is more than the corn is worth.
Just my Ag background view of things
Tim
NKP guy:
Another alternative is to buy Berkshire Hathaway B shares…or purchase his big holdings such as KO, XOM, AXP, MCD, Wells Fargo, etc.
He did buy BNSF at the right time…but then again he usually buys at the right time.
Ed
Man, that is a lot of expensive concrete. At what point do you bite the bullet and buy more indoors storage?
The normal allowance for loading a unit train is 24 hours. The same allowance is normal at the unloading site.
I know that some local elevators around my area have been doing the temporary corn storage gig for the 30 years that I have lived here. This includes elevators that aren’t rail served.
I was surprised to see a parked unit train of ethanol cars D&I train south of Hawarden blocking their main.
Maybe – I don’t know – some of these farmers need to haul their grain to newer, more progressive, elevators. I’ve been past a couple of the new “supers” in western North Dakota this summer, and they don’t have any corn on the ground or on pads.