Rail Strike Risks Harvest and Biofuels

WASHINGTON (DTN) -- Farmers in areas that rely heavily on railroads to move commodities could see some significant basis challenges and more problems getting access to fertilizer, and livestock producers could risk problems getting access to feed as well if talks between railroads, unions and government officials fail to reach a labor deal before Friday.

Consumers also could face even higher food and fuel prices if rail movement halts delivery of products such as ethanol to refineries.

After more than two years of talks, a Presidential Emergency Board spelling out terms of a possible middle ground, and a 30-day period of extended talks, the deadline for a strike comes down to 12:01 a.m. Friday. The negotiations involve 12 unions representing more than 100,000 workers as well as the country's largest freight railroads.

Zippy Duvall, president of the American Farm Bureau Federation, weighed in Wednesday, calling on workers and railroad company management to reach a deal immediately to keep trains moving, or Congress should prepare to step in to avoid a rail stoppage.

"An extended rail strike would have cascading effects on farmers and ranchers, and the best solution for agriculture and the U.S. economy is to avoid a strike entirely," Duvall said in a news release. "There is no real substitute for moving agricultural goods, as trucks can only move a small percentage of grain and other products typically transported by rail, and river transport is only an option for certain geographic areas. A rail strike now would reverse the supply chain improvements achieved in the past year and make it more difficult for U.S. farmers and ranchers to address rising global food insecurity."

Labor Secretary Martin Walsh met Wednesday with the heads of unions representing engineers and conductors, and railroad negotiators. The conductors and engineers are the two key unions holding out, and they make up more than half of all the rail workers involved in the labor talks.

As of late afternoon Wednesday, no positive announcements had been made. Reports earlier this week also suggested the White House was drafting an emergency order to ensure some vital products continue to be shipped even if there is a strike.

The International Association of Machinists and Aerospace Workers said Wednesday its 4,900 members rejected the latest proposal reached with the Class I railroads.

Amtrak on Wednesday also canceled its long-distance routes for Thursday as a precaution.

Congress has the power to step in and avert a rail strike if agreements between the rail carriers and labor unions are not reached.

"If a deal isn't reached by Friday or there isn't some type of extension, we're going to make it very clear that we need quick congressional action," Mike Seyfert, CEO of the National Grain and Feed Association, said in an interview with DTN on Wednesday. "This would be devastating for the food and ag commodities, as well as the broader economy."

However, the House of Representatives isn't scheduled to be in session on Friday. Sen. Dick Durbin, D-Ill., a senior leader in the Senate, told reporters earlier in the week that the Senate does not want to step in while talks are going on. That means it would be next week at the earliest before Congress would be prepared to step in and end the strike. That assumes any legislation would get 60 votes in the Senate as well.

RAILROADS WINDING DOWN

Grain elevators in some areas are already seeing railroads "winding down" their service because the railroads don't want to risk stranding crews in case of a strike, Seyfert said.

"The hope is they will get a deal, and we understand they are still talking," Seyfert said. "What we're hearing from our members is if there was a train on the tracks, they are trying to get it to you, but it doesn't sound like there will be any new trains moving or freight picked up."

At this point, Seyfert said, even if the unions and railroads reach a deal, there are going to be some immediate supply chain issues just based on how much the railroads have already dialed back services.

"Even without a strike, Friday is going to be a pretty slow day, so there are going to be some disruptions in the system," Seyfert said.

Local agricultural markets have already started to react to the railroads slowing traffic, said DTN Basis Analyst Mary Kennedy. Soybean basis in the Pacific Northwest (PNW) for September has dropped at least 55 cents this week.

Seyfert said it's hard to quantify the impacts on cash basis, but added, "There are certainly some areas that are more dependent on rail to move their grain," he said.

Even in areas that can shift over to more trucking, the demand will increase trucking rates as well, Seyfert said.

"From our members' perspectives, I don't think it could hit at a worse time than as fall harvest is starting to ramp up and come in quickly in a lot of regions of the country," he said.

Railroads already have stopped shipments of certain materials and chemicals such as ammonia and other fertilizer products as the railroads prepare for a stoppage. That could affect supplies for fall fertilizer applications, warned The Fertilizer Institute.

"Tomorrow (Thursday) is the last day Congress has to step in and avoid what would be an absolutely devasting strike that farmers and consumers cannot afford," said TFI President and CEO Corey Rosenbusch. He added, "For every day this uncertainty continues, we essentially lose five shipping days because of the ramp down and ramp up."

A recent analysis by the Association of American Railroads cited that the economy could take a more than $2 billion hit to productivity every day the major railroads are shut down.

Kennedy questioned if the labor talks could be resolved quickly considering the unions and railroads have been in negotiations for more than 2 1/2 years.

"I have been watching these negotiations for the past few years, and I am not confident that there will be an agreement unless the attendance issue is solved," Kennedy said.

ETHANOL, FUEL IMPACTS

Geoff Cooper, president of the Renewable Fuels Association, on Tuesday told reporters the strike is a "dire situation" for the ethanol industry as well.

"Seventy percent of the ethanol we produce in the U.S. is shipped by rail," Cooper said. "So, this is a very, very concerning issue for us. We've already been experiencing in the ethanol industry poor rail service. It's been a precarious situation across that supply chain for quite some time coming out of the pandemic."

If the industry cannot move ethanol, then plants would likely have to shut down, Cooper said. "Once you fill up those storage tanks, if you can't move it out of the facility, your only option is to shut that plant down."

Cooper added that would then translate into increasing fuel prices at the pump if the ethanol that makes up 10% to 12% of the blends for gasoline cannot get to refineries.

"If that product is held up or sitting on a siding somewhere or can't make it to a terminal to get blended, that is absolutely going to affect gas prices just at a time when we were starting to see some relief and getting gas prices headed in the right direction," Cooper said.

Kennedy pointed out spot ethanol prices were surging earlier this week. That was likely a function of the railroads stopping service of hazardous materials.

As DTN Energy reports noted, each rail car carries about 30,000 gallons of ethanol and are frequently connected in unit trains that can total anywhere from 80 to 120 of these railcars, equating to 2.4 million to 3.6 million gallons. A tanker truck carries about 8,000 to 10,000 gallons. So, it would take 240 tanker trucks to achieve the capacity of a unit train with 80 rail cars.

Chris Clayton can be reached at Chris.Clayton@dtn.com

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