Experts say farmers will try to sit on their inventories longer because of low prices, but if they decide to sell, railroads have the space to carry their loads.
Western railroads this year are in much better position to move agriculture products to domestic customers and ports for export, but farmers face a dilemma about whether to take advantage of the improved capacity and service, according to industry experts.
Last harvest season, the railroad industry struggled to meet demand from agriculture producers. BNSF Railway, in particular, struggled most of the year to recover from massive winter storms that backlogged cargo and damaged parts of its network infrastructure. During the summer and fall, it slowed or diverted traffic on certain routes to allow for a large construction campaign to add track capacity. Ag shippers also faced delays because a shortage of locomotives and railroad workers as BNSF was hit by surges in volumes from other sectors such as crude oil.
BNSF responded last year by hiring 7,500 new personnel, adding more locomotives and investing a record $5.5 billion in infrastructure. The railway is investing another $6 billion this year to make its network more fluid.
Since January, it has recovered most of its velocity and largely met service expectations. Train speed through July is 12.7 percent higher than through the same period last year, according to the company.
Western competitor Union Pacific has also improved the condition of its network, with $8.4 billion in capital expenditures in 2014-15.
But freight transportation representatives say farmers and grain handlers might face a rail transportation shortage if they decide to reduce large inventories at once. Grain elevators are full because producers facing low prices last year stored crops waiting for a more opportune time to sell, but strong soybean and corn crops this year raise questions about where all the product will go at a time when the strong dollar and flagging economies overseas have dampened export demand. Most expect the ag community to have modest rail needs this season, but if storage is exhausted or farmers need to sell for cash-flow purposes it is possible the grain could be unleashed on railroads in a confined period of time, which could tax the system.
American farmers “face a moment of truth” about whether to sell excess stocks at lower-than-desired prices, Dean Wise, BNSF’s vice president of network strategy, said during a panel discussion on logistics in Washington this summer.
With elevators at full capacity, many farmers will resort to on-farm storage this year, Mike Steenhoek, executive director of the Soy Transportation Coalition, said in e-mail broadcast to reporters.
“The good news is that there will likely be sufficient transportation supply to accommodate demand. The bad news is that the increasingly unfavorable economics facing the industry is a key contributing factor,” Steenhoek wrote.
Commodity prices, not rail capacity, to dictate agriculture volumes
