Railways must perform if Canada is to capture exports

With crops in Europe, the Black Sea region and Australia suffering from moisture stress this summer, there could be an enhanced export opportunity for North American crops this crop year.

And with America’s export outlook darkened by the Trump administration’s bellicose attitude toward most of its trading partners, Canada has the potential to be a preferred supplier.

But to do so the grain transportation sector, and I’m looking at you Canadian National Railway, must replace excuses with performance.

On Aug. 2 on CN’s website, the company released a podcast featuring its executive vice-president, Sean Finn, talking about the railway’s plan for moving the 2018 crop.

Finn tried to present a reassuring tone, referring to the company’s significant capital and staffing investments, including its largest ever capital budget of $3.5 billion, purchase of 200 more locomotives (60 of them available this fall), as well as 1,000 new high capacity grain hopper cars that will start arriving in January. Also, it has trained and will roll out more than 1,000 new conductors.

Of the capital budget, $400 million will be spent on the line between Edmonton and Winnipeg to improve what Finn called “capacity, resiliency and fluidity.”

With Bill C-49 passed, the railways are now required to present Transport Canada with written plans for moving the crop. That document will be updated in the fall when the size of the crop is better known.

Canadian Pacific Railway has also posted its plan on its website. It plans to have 15 percent more locomotives operating this fall than last year at the same time. It is also investing $500 million on new grain hoppers and hopes to have 500 of them in place before the end of the calendar year.

It is good to see these investments.

CN was caught terribly flat-footed last year when it found itself under-staffed and under-resourced for growing demand from the grain industry and other parts of the economy.

This failure contributed to lost crop sales and the increase in year-end grain stocks that weighs on grain prices.

Quorum Corp., Canada’s grain monitor, forecasts the carryout of western Canadian grain at 12.6 million tonnes, well above the previous five year average of 8.3 million.

For canola alone, Agriculture Canada forecasts year-end stocks of 2.7 million tonnes, up from 1.35 million in 2016-17.

The hot, dry weather this summer likely means western Canadian farmers won’t produce a bumper crop, but with the larger than normal carry in from 2017-18 the total supply for the new crop year will likely be at least as large as last year.

An early harvest is expected, and new grain as well as that left over from last year could lead to opportunities for large movement to port this fall if offshore demand is there. But the railways must also do a much better job of moving grain during the winter when offshore demand is often strongest.

If the Trump administration continues to escalate its trade war with China, which seems likely as last week the president threatened to increase tariffs on Chinese goods to 25 percent from 10 percent, there is potential for China to buy more Canadian soybeans, canola, pulses and maybe wheat.

Also, India might need to reconsider in a few months its duties on pulses if the monsoon there continues to under-perform. Last week, private, south-Asian focused weather forecaster Skymet forecast the monsoon would deliver only 92 percent of average rainfall with particular weakness this month.

That would trim the current summer crop and set up the larger acreage fall-seeded crop for further problems, potentially ending a string of bumper crops that led to surpluses and the restrictions on imports.

There are always many variables, from weather to policy, that affect crop demand and price, but it seems there is more volatility and unanswered questions this year than in the recent past.

And while U.S. President Donald Trump’s trade wars could cause grain markets to adjust, with crops cut off from China moving to other buyers, we must also note that the corn, soybeans and spring wheat growing in the United States are all in better than normal condition leading to potential for excellent yields.

And that could weigh down prices on the Chicago and Minneapolis futures markets that so heavily influence our prices here in Canada.

About the author

Markets at a glance

Copyright © 2019. All market data is provided by Barchart Market Data Solutions. Information is provided 'as is' and solely for informational purposes, not for trading purposes or advice. To see all exchange delays and terms of use, please see disclaimer.


Stories from our other publications