Submitted by: agcomm, Thu Dec 4 10:39:01 1997 The Market Advisor: Rail Problems Worse Than Usual George Flaskerud, Extension Crops Economist NDSU Extension Service Elevators continue to experience rail problems that are worse this year than usual. Jerry Norton of the USDA Agricultural Marketing Service explains why these problems are occurring in the Wheat Outlook Report released by USDA on Nov. 12. His article follows. Rail shippers in many parts of the nation have been experiencing serious shipment delays and service disruptions since late summer. The impact of the current problems varies substantially from region to region and market to market. Grain shippers in the lower Plains and western Corn Belt have been especially hard hit by these problems. Western livestock and poultry feeders that depend on rail shipments of feed grains from these areas have also had to struggle to secure sufficient feed supplies to maintain their herds and flocks. As the fall harvest enters its last weeks, additional grain moving in from the fields could mean that any significant improvement in the current situation is still weeks away. The service problems now plaguing many grain shippers in the western United States began in July on the Union Pacific in and around the Houston market. The initial problems appear to have stemmed from stronger than anticipated intermodal and petrochemical demand combined with Union Pacific's efforts to consolidate its operations with those of the Southern Pacific Railroad. These problems were further exacerbated by the unexpected large winter wheat harvest in the southern Plains. The 1997 U.S. winter wheat crop was up 27 percent from last year. Among the factors contributing to the Union Pacific-Southern Pacific consolidation problems were incompatibility of computer systems between the railroads, unsettled labor agreements that restricted crewing flexibility, and lack of adequate locomotive power to move trains. To some extent the shortages of locomotive power reflect long-term operating problems inherited from the cash-strapped Southern Pacific which Union Pacific acquired last year. With the fall harvest and increased demand for grain transportation, the Union Pacific's troubles have quickly spread to other areas and other railroads, especially the Burlington Northern Santa Fe. The current rail service problems are substantially different in nature than the types of equipment shortages and service delays that shippers have routinely experienced following many recent harvests. Since early September, grain car loadings on the major railroads have averaged 23,250 cars per week (3,200-3,400 bushels per car). This is down nearly 20 percent from the average weekly loadings during the same period in 1995 when many shippers in the western Corn Belt and upper Plains experienced serious equipment shortages and service disruptions. Grain traffic on the three major western U.S. railroads--the Burlington Northern Santa Fe, Kansas City Southern, and Union Pacific--is also down this fall as compared with 1995 traffic. Since September, only the Kansas City Southern has had average weekly grain loadings higher than their 1995 level. Increased grain traffic on the Kansas City Southern, part of which is the result of rerouting from the Union Pacific, has done little to increase the overall level of loadings on the western railroads. Weekly loadings on these carriers are averaging 16,300 cars per week, down 17 percent or nearly 3,500 car loads per week from the same weeks in 1995. Average weekly grain loadings since September on the four major eastern U.S. railroads--Conrail, CSX Transportation, Illinois Central, and Norfolk Southern--are also down from 1995. Since the first of September, the eastern railroads' weekly grain car loadings have averaged 6,800 cars per week, down 11 percent from their levels in 1995 but up 12 percent from 1996. This increase over 1996 has been driven by increases on the Illinois Central. Since the fall harvest season began, the Illinois Central has experienced a 45-percent increase in average weekly grain loadings. Some of this increase in grain traffic on the Illinois Central reflects shifts in shipments away from the troubled western railroads. Since early September, rail shipments of grain to export elevators have averaged 6,000 cars per week. This is up more than 50 percent from last year when the U.S. corn crop was smaller, but down 34 percent from their levels in 1995. Despite rail congestion problems in the lower plains which have nearly tripled shipment times for grain railed from Kansas to the Gulf, moderately strong export demand has kept wheat shipments moving to Gulf Coast ports. Since the beginning of the wheat marketing year on June 1, Hard Red Winter (HRW) wheat export inspections are up 6 percent. Since July, when the current rail problems began, HRW wheat inspections at Texas Gulf export houses are up 17 percent from their 1994-96 average. At Texas Gulf facilities, rail car shipments of grain have averaged 2,100 car per week since September--up 41 percent from last year and 2 percent from 1995. With export sales of wheat running 20 percent ahead of last year (as of Oct. 30), strong demand for transportation to move HRW wheat to the Gulf export houses should continue for some time. Inland river facilities in Oklahoma along the Arkansas River and at Kansas City on the Missouri River are reporting substantial increases in barge shipments of HRW wheat to export facilities in Louisiana along the lower Mississippi River. HRW wheat export inspections at the Louisiana export houses are more than double their average for the 1994-96 years. Hardest hit by the present rail service problems have been grain shippers in the lower Plains and western Corn Belt, particularly country elevator shippers. Colorado, Kansas, Oklahoma, and Texas have experienced the worst of the problems so far. Good corn and sorghum harvests in this region have followed an excellent winter wheat crop. The large wheat crop and strong market signals to store grain left many grain elevators filled to capacity with little or no room for the large feed grain harvest. Reports from Kansas indicate that as much as 30 million bushels of grain may be piled on the ground. Even though nearly all of this is feed grains, quality deterioration is a growing concern with the recent early snows that fell across the region. The western Corn Belt and corn producing areas of the upper Plains are also experiencing service problems, particularly in Minnesota, Nebraska, and the corn producing areas of North and South Dakota. The inability to move harvested feed grains, particularly corn, has forced many country elevator shippers to pile grain outside as they wait for long- delayed rail equipment to arrive at there facilities. With this region experiencing its third largest corn crop ever, elevators are scrambling to find adequate storage. The Nebraska Public Service Commission has issued elevators in that State temporary licenses to store as much as 50 million bushels of corn on the ground. The current rail service delays have forced many livestock and poultry feeders in areas outside of the traditional grain belt to rely extensively on truck shipments to meet their feeding needs. Arkansas poultry feeders have been forced to fill in between delayed rail shipments with trucked grain coming off the river or from feed grain producing areas to the north. Western Plains hog feeders and California feedlot operators have faced similar problems as they have had to scramble to secure steady supplies of feed grains and feed ingredients that are normally delivered by rail. Southeastern poultry and hog feeders have not been as directly impacted by the rail problems in the West. Normally in the first part of the season, grain supplies for these feeders are originated by rail out of the eastern Corn Belt in Illinois, Indiana, Ohio, and Michigan. The eastern railroads serving this market have, however, experienced high levels of demand for covered hopper rail cars. This has slowed transit times for some grain movements, but not to the extent that would drastically delay shipments. Late summer fertilizer demand on the eastern railroads was stronger than usual and has lasted into the early part of the eastern grain harvest. Many of the covered hopper rail cars that were in fertilizer service are gradually being shifted back into grain service as they return from receivers throughout the Midwest. The return of some of these cars has been delayed by service problems in the West. Grain moving in from the fields as the fall harvest continues will add to existing rail demand in the coming weeks. As of the first week in November, 18 percent of the corn crop and 24 percent of the sorghum crop were still in the field in the western United States. This amounts to more than 1 billion bushels of feed grains, or nearly 10 percent of the U.S. feed grain crop. The eastern U.S. corn crop is substantially further behind, with more than one-third of the corn still in the field. This amounts to more than 1.2 billion bushels of corn. Thus, substantial improvement in the current rail transportation situation could still be weeks away. ### NDSU Agriculture Communication Source: George Flaskerud (701) 231-7377 Editor: Tom Jirik (701) 231-9629