One of the most anticipated harvests in memory is only a few weeks old, and grain exporters say they’re already seeing signs that Canada’s railroads won’t be able to keep up with a bumper crop expected across the Prairies this fall.
Buyers and traders anticipate a major injection of grain, which would help tamp down food inflation and stabilize a global food system that has been reeling from drought and the war in Ukraine. But Canada’s top grain companies are nervous they won’t be able to get shipments to port as quickly as they want in the coming months, judging from a stream of excuses now coming from the railroads, according to the grain industry’s main lobby.
Both Canadian National Railway Co. and Canadian Pacific Railway Ltd. have spent the spring and summer boasting that they’ve added new hopper cars to their fleet and boosted capacity to get that grain to port for export.
But a report from the Ag Transport Coalition shows a “notable decline” in the railroads’ ability to provide hopper cars to ship grain. The coalition of agriculture lobby groups found CN and CP provided 83 per cent of all hopper cars ordered during the week of Sept. 4, down from 94 per cent the previous week. The drop was driven by CP, which only provided 74 per cent fulfillment, or 4,362 of 5,861 cars ordered.
CP said in a statement that it was dealing with an 80-per-cent increase in grain shipments over the prior week. CN, however, had a 98 per cent fulfillment rate.
The Western Grain Elevator Association, a lobby group that represents the largest grain companies including Cargill Ltd., G3 Canada Ltd. and Viterra Canada Inc., acknowledged that a one-week dip in fulfillment rates isn’t cause for concern on its own. The more worrying signal is what the railroads themselves are saying, according to WGEA executive director Wade Sobkowich.
Sobkowich was concerned with CN’s annual grain plan, a federally mandated document that shows the railroad plans to move 24.5 to 27 million tonnes of grain in the 2022-23 crop year, which began on Aug. 1 — well above the roughly 18 million tonnes shipped in the previous year following last summer’s extreme drought in the Prairies.
As part of the grain plan, CN warned, in bold, that it expects total demand for rail service between Edmonton and the West Coast ports of Vancouver and Prince Rupert “will exceed network capacity during some weeks” this fall and into early 2023.
“That’s a strong signal from CN themselves that we shouldn’t expect too much from them this year, and that’s very, very concerning to us,” Sobkowich said.
The latest crop yield estimates from Statistics Canada predict farmers will reap about 34.7 million tonnes of wheat alone, up 5, about 55 per cent more than last year’s drought-stricken harvest.
David Przednowek, who heads CN’s grain unit, argued that it’s unrealistic for grain companies to flood one corridor with a big harvest
Przednowek said CN is only one part of the supply chain, and movement on the railroad can be impacted by delays outside of its control, including bad weather and delays at port. “There’s a limit to how much the supply chain can handle,” he said. “If it all wants to get pointed in one direction, it’s not going to fit.”
CN has been trying to convince grain shippers to send product east, rather than west, using ports with grain terminals in Thunder Bay or along the St. Lawrence River to access markets in Europe and Africa. In fact, CN estimates that it could ship an additional 67,000 tonnes of grain per week during non-winter periods if demand was balanced across the network, for a total of 744,000 tonnes per week.
“If you can tip a little bit of that demand back over into the eastern supply chain, that’s going to help move more of everything,” Przednowek said.
Sobkowich said shipping grain east instead of west is akin to a telecom trying to fix an overcrowded network in Toronto by telling customers, “We know your grandmother lives in Toronto but you should call her in Edmonton.” In other words, CN’s suggestion is incumbent on farmers and their agents finding new customers, when they already have plenty in Asia.
“To us, that is a blatant attempt at CN to flex its monopolistic muscles. In what industry does a service provider dictate the demands of their companies?” said Sobkowich, adding that grain companies want to ship through the West Coast to access markets in the Pacific Rim, where they can get the highest premiums for the product. And if they wait until later in the year, when grain harvests from other parts of the world are also flooding the market, those premiums will likely be gone.
Sobkowich suggested that grain could be taking a backseat to coal shipments in Western Canada, where miners have been ramping up production to meet renewed demand from buyers seeking to avoid sky-high oil prices. Canadian coal exports increased nearly 14 per cent in the second quarter of this year, mainly “due to higher volumes exported to Asia to meet rising electricity demand,” according to a Sept. 22 report from Statistics Canada. In the first half of 2022, CN shipped 46 per cent more carloads of coal, according to the company’s latest financial update.
Those unexpected coal orders could disappear if mines opt to curtail production because they can’t get railcars. With grain, there isn’t the same risk of losing the business because the crop is already harvested and is dependent on rail to get to markets, Sobkowich said.
CP and CN said Sobkowich’s theory is wrong.
“CP shows no preference to coal or, for that matter, any specific commodity,” CP spokesperson Salem Woodrow said in an email.
Przednowek, CN’s assistant vice-president for grain, said crews don’t ride a cross-country train from one end to the other. They’re based in one place, and only work on a limited segment of a rail line, so it isn’t as simple as moving a crew from one job to another.
“It is absolutely not accurate to say, ‘Well we’re just moving a bunch of people from here over here to move a bunch of coal,'” he said. “That’s not the case at all. That is not how things work.”
Regardless, delays on the railroads will ultimately impact the price paid to Canadian grain farmers, according to Marlene Boersch, a former grain executive whose firm, Mercantile Consulting Venture Inc., advises farmers and grain companies.
“As a trader, you make sales that have dates attached to them and when you’re late, there are penalties,” she said. “At stake is your margin, at stake is our reputation as a reliable shipper.”
The more delays, the more cost to the grain company, which will eventually impact the price that company wants to pay to farmers for their crops.
“The biggest loser at the end,” Boersch said, “is the farmer.”