Market Matters Blog

Logistics Still a Mess on Rivers, U.S. and Canadian Rails

Mary Kennedy
By  Mary Kennedy , DTN Basis Analyst
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Just as rail cars were beginning to move again last week, albeit slowly, another round of extreme cold and blowing snow created problems across the Midwest for nearly all carriers, causing more service delays. The BNSF on January 28 stated on their website that "the effects of consecutive severe weather disruptions continue to impact BNSF operations across the Midwest, in particular Chicago. The most recent period of extreme cold temperatures has slowed the return to normal operations, presenting elevated risk factors for personnel and interfering with equipment operations." The BNSF said they were "adding significant personnel, both BNSF and contracted, to remove snow, clean switches, and assist with restoring terminal and hub fluidity." The website went on to say that "while weather is expected to improve in the coming days, the operational impact and associated traffic delays will extend into the coming weeks." (BNSF's service advisories can be found here: http://bit.ly/…)

Late last week, the Minneapolis spot spring wheat basis moved lower as cars were able to load and freight costs declined, but with the blizzard conditions in the Northern Plains earlier this past week, spot spring wheat basis levels moved higher on January 30 with only 33 cars showing up for sale. Soybean and corn shuttle basis for delivery to the PNW also strengthened due to the weather slowing trains from loading and moving.

Conditions were not going to change much to end the week, DTN Meteorologist Bryce Anderson said on Thursday, Jan. 30. "Thursday will feature a combination of northern snow and cold, freezing conditions in the southeast and harsh winds across the central U.S. areas. Transportation will continue to be interrupted across much of the central and eastern U.S. with this pattern. Light snow will move across the central Plains and beltline of the Midwest Friday. Snow or ice is expected from central Illinois north to southern Wisconsin and from north Indiana and northwest Ohio to Michigan later today or during tonight and Saturday."

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Rail service in Canada is actually worse than the problems in the U.S. transportation sector, and it's not just weather related. Canada has had service issues since last fall when a record canola and wheat harvest put a strain on the railways. Also adding to the lack of grain car placement and movement are oil cars crowding the tracks, which has also been a problem on U.S. railways as well. According to the American Association of Railroads weekly railroad traffic report, year-to-date oil shipments in North America are up 10.5% compared to last year at this time.

On January 29, there was a rumor that upwards of 1,000 loaded railcars were sitting in Moose Jaw "pointed towards the U.S." DTN Canadian Grains Analyst Cliff Jamieson contacted the terminal and other sources and was unable to confirm the rumor. However, Jamieson said, "I think that we have cars sitting everywhere from here to Vancouver and as one suggested, we're 48,000 confirmed railcars behind in the industry, so 1,000 loaded cars somewhere just doesn't make headlines up here if they did exist."

Jamieson added that an Alberta producer recently over-delivered on a #1 CRSW 13.5 contract and was paid $2.75 per bushel on his overage. That price suggests that the basis deducted "actually exceeded the cash price paid." In other words, if the Minneapolis futures were between 5.75 and 6.00, that would put the basis at -$3.00 to -$3.25 under the Minneapolis March futures, which is extremely steep in comparison to the average basis bid recently in North Dakota for #1 DNS 14 protein at -48 cents under the Minneapolis March futures.

Jamieson also said that some terminal websites state they have ceased contracting grain, old and new crop, until the rail situation in Canada improves.

"Right now we have a transportation issue. By March we will have a major cash flow crunch, which will be the next story," he said. "Bank loans, input supplier loans and Farm Credit Corporation loans are coming due between now and March. Meanwhile, I am told there are still some September and October contracts yet to be delivered. It won't be pretty." Buyers in the U.S. have also confirmed that there is some contracted Canadian wheat and durum that has not reached the U.S as of yet.

The U.S. rivers have not been immune to weather related issues. On January 28, sources on the river reported that the below freezing temperatures would further slow or stop barge operations on the Illinois River. On January 29, a barge line reported that traffic above Pekin, Ill., was at standstill with no barges moving in or out of that area as ice buildup made it dangerous for barges to navigate. The Upper Mississippi River between Granite City and St. Louis was experiencing ice buildup, which was slowing operations at Granite City. While barges were loading in St. Louis, low water levels were more of an issue than the ice. South of St. Louis, work is continuing on Phase 2 of the rock removal at Thebes, Ill. The next area where the operation will continue for the next 2 to 3 weeks is in a narrow bend on the river. Because of this, the river will be closed to navigation during the day, which will cause a slowdown in barges moving out of St. Louis to the Gulf.

Adding to river logistics problem was the mix of snow, ice and sleet in the south mid-week that caused the suspension of operations at the Baton Rouge and Louisiana harbors on January 29 and 30. A barge line stated that "delays getting in and out of fleets from St. Louis to Nola is extending trip times and slowing down barge availability." Basis levels for soybeans and corn along the Illinois and Ohio Rivers and the Mississippi River have been weaker this week not only due to navigational problems but also because of lower draft restrictions and higher barge freight.

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