Worldwide demand for manufactured goods collapsed under COVID-19 restrictions, but bulk commodities were unfazed
Grain is saving the railways’ bacon.
While demand for other commodities slumps and throws the business plans of Canada’s two national railways into disorder, hauling large volumes of crops has allowed the railways to record not-bad results, despite the pandemic.
“Our strong bulk franchise, which included record movements for Canadian grain and potash in the first half of the year, help to offset some of the declines we experienced in other lines of business,” said Canadian Pacific Railway president and chief executive officer Keith Creel in announcing his company’s April-June (second quarter 2020) results.
“The CP family of railroaders has achieved these results during some of the most challenging conditions the world has experienced in recent memory.”
Many farmers have been surprised to see grain flowing out of Western Canada not only in a mostly uninterrupted manner regardless of the COVID-19 pandemic, but probably also at a better than previously expected rate.
CP’s gross grain shipments increased eight percent and increased by five percent in terms of number of grain cars shipped compared to the same quarter last year. Potash shipments increased too as international sales demand stayed strong, as other commodities weakened.
Canadian National Railway saw similar results, with a small slip in grain and potash shipments, but major slumps in automotive, container and metals shipments.
That caused what CN CEO Jean-Jacques Rouest described as the “toughest quarter of his career,” but one that highlighted the strength of the company’s diversification across commodities and industrial products.
While worldwide demand for manufactured goods collapsed under COVID-19 restrictions, the world of bulk commodity trading mostly went on.
That has so far allowed crop farmers to skip through the pandemic with little obvious impacts on their ability to move crops or receive prices close to pre-pandemic levels.
Indeed, November canola futures prices are now above where they were in the early stages of the pandemic, and well above the $470 per tonne trough they hit in the spring.
November soybean futures are a few percent lower than pre-pandemic. Both the weakening of soybean prices and the strengthening of canola prices can be mostly explained by the impact of foreign exchange swings since the pandemic began, with the United States dollar rising, pushing down the per-greenback value of soybeans, and the Canadian dollar falling, which raises the per-loonie value of the crop.
In other words, despite the global medical and economic crisis, crops are mostly unchanged in value, both in terms of price and demand.
Canada’s railways didn’t have a good quarter and farmers won’t be celebrating the continuation of weak crop prices, but compared to what’s happening to businesses, industries and economies elsewhere in 2020, things didn’t appear to be too bad.