Canada Markets

Grain producer organizations were in the media on Wednesday calling for the Canadian Senate to pass Bill C-49, The Transportation Modernization Act "as quickly as possible." Recent railway performance is viewed as weakening, while producers and shippers remain haunted by the worst-case scenario as experienced in 2013/14. "With car order fulfillments decreasing, growers are becoming increasingly concerned we will find ourselves in another devastating backlog like we experienced in 2013-14," stated Jeff Nielsen, Grain Growers of Canada president in a Thursday press release.

The Canadian Grain Commission's week 19 statistics, covering activity though the week ended December 10, shows 906,600 metric tons shipped from primary elevators over the course of the week, up slightly from the previous week and 2.8% higher than the previous four-week average.

As seen on the attached graphic, cumulative shipping of all grains as of week 19, of the 2017/18 crop year, or the week ending December 10, totals 17.3376 million metric tons. This is 6,500 mt or .04% higher than reported for the same period in 2016/17, as indicated by the grey bar (2017/18) and the brown bar (2016/17) on the graphic. This is also 8.4% higher than the previous five-year average.

Over the past five years, shipments of all grain from primary licensed elevators has accounted for an average of 38.8% of total crop-year shipments. This average pace of movement could be used to project total crop year shipments of approximately 44.7 mmt, which would be 2.3% below total crop year shipments of 45.8 mmt reported by the CGC for 2016/17.

By province, total grain shipping from Alberta at close to 5 mmt trails both the pace realized in 2016/17 and the five-year average for the province. Shipping from Saskatchewan at 8.2 mmt trails the previous crop year by 421,900 mt but is higher than the province's five-year average. Manitoba shipping, at 4 mmt, is 686,600 mt ahead of the pace realized in 2016/17 and well-ahead of the province's five-year average. A significant year-over-year increase in that province's movement of wheat, oats, canola and soybeans has led to the results shown for this province.

While year-to-date shipping may appear favorable at first glance, data presented by both shippers and one of Canada's two major railways show shipping well below potential and problematic for certain areas of the prairies. The latest week 18 data from the AG Transport Coalition indicates that CN spotted only 57% of the empty hoppers in demand for loading for the week, while CP spotted 78% of the cars in demand. Week 18 performance by CN was up 1% from the previous week and is near the 51% low reached in week 12. CP's performance, which saw 78% of the cars spotted relative to weekly demand, is down from 90% the previous week and the lowest reported this crop year.

AG Transport Coalition data points to total unfulfilled shipper demand at 14,345 railcars, 12,119 cars on CN track and 2,226 cars on CP track. Of the five categories of unfulfilled demand -- outstanding orders, rejected cars, railway cancellations, shortened supply and denied orders, one sticks out as the major issue. This is CN Rail cancellations at 9,406 cars, accounting for 65% of all unfulfilled demand. At 90 mt/car, total unfulfilled demand would represent close to 1.3 mmt. The AG Transport Coalition points to three derailments in two months on CN track largely behind the challenges faced.

CN's latest week 18 Update on Western Canada Grain suggests that a cumulative 8.4 mmt has been moved, 8% lower than the same period in 2016/17 and 4% below the three-year average.

Also in the news today is the challenge faced by the oil industry in securing railroad capacity, with the National Post reporting that Canadian heavy oil has reached its weakest price relative to the West Texas Intermediate price in four years. This is partially tied to a two-week shutdown in a U.S.-bound pipeline that has forced the oil industry to chase rail capacity as inventories back up.

RBC reports on Friday that growing production in the first quarter of 2018 will drive heavy crude in Canada to an even greater discount, even higher in demand south of the border, while growing inventories are expected to lead to increased competition for rail service. CN reports that crude oil makes up just 1% of the company's revenues, although when the service is required it will be difficult for grain to compete.

Statistics Canada's Railway car loadings statistics shows September loadings of fuel oils and crude petroleum at 12,436 cars, the latest month reported, which is the highest number of cars shipped since April but still well below the 17,371 cars shipped in January 2014.

Bill C-49 is viewed as a "permanent tool" designed to level the playing field to protect shippers, although it has been stalled in the Senate since early November. An entire overhaul of the entire transportation system wrapped up within a single bill has complicated the process, with an airline passenger bill of rights suggested to be one of the troubling pieces which may be bogging down the process. Despite the urging of the grain groups to address this bill, word is it may be late January before it is back on the agenda.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

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