Canada Markets

There's a war of words breaking out over the challenges faced by the railroads in moving grain to export terminals as well as end-use markets such as U.S. mills. The railroads have repeatedly suggested that the huge crop produced in Western Canada, which came without notice, combined with the extreme weather faced since December has reduced the railway's capacity.

Last week, CP CEO Hunter Harrison appealed to Canadians in a full-page open letter to Canadians in the Globe and Mail where he "set the record straight." Harrison stood by his claim of weather and crop size as the source of the issues, while suggesting that adding more equipment to the tracks "is like adding more cars to a highway at rush hour."

Since the federal government passed an Order in Council which will set minimum targets of 5,500 cars per railroad each week, CN rail has responded suggesting that they will be responsible for 10 million metric tonnes more or 50% more than any other crop, while cooperation throughout the chain will need to work together to make this happen. The extra 10 mmt is suggested to be twice as much as the export potash moved by the company, 25% more than all of the export lumber moved and close to equal to the volume of coal moved.

The Western Grain Elevator Association responded with their take on events. AGCanada.com reports that the WGEA points towards CP meeting only half of the demand for shipping in as early as week 8 in September and actually failed to meet demand on each week of the crop year. The WGEA states that there was no lack of communication between grain shippers and the railroads and the size of the crop wasn't the big surprise that the railways are suggesting.

Despite a resounding show of support from industry sources for the federal government's initiative to mandate shipping, it is early days and the response from the railroads will be watched closely. There is no way of knowing how the railways will respond and how this mandate will affect individual grains, nor does it shed light on the direction the movement will take place. The railways have previously indicated a focus on West Coast shipping, which could continue to affect the delayed movement to U.S. markets.

CN's website suggests the five-year average for cars spotted over the April through July period is 3,518 cars/week. The 5,500 car weekly target is approximately 2,000 cars above the average movement. Doubling this to reflect CP's incremental movement, we have an extra 4,000 cars per week in order to address what is reported to be a 60,000-cars backlog, which suggests that 15 weeks of solid performance on the part of the entire chain will be required just to clear the back-logged grain.

The attached chart indicates the total volume of grain unloaded this crop year at West Coast terminals which include both Vancouver and Prince Rupert (blue line) as compared to last year's unload volume (red line), as reported by the Canadian Grain Commission. Year-to-data data for the latest Week 30 reports indicates that this year's 11.606 mmt is 1.3% behind the 11.766 mmt receipted as of week 30 in 2012/13. The chart indicate weekly receipts falling below year ago levels in the week 19 to week 27 period.

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

(ES)

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