The biofuel industry is going to cause the combustion of railway revenues, according to some analysts, but railway and biofuel executives say that’s not so.
The diversion of railway money is already happening south of the border where an estimated 24 percent of this year’s corn crop is being consumed by the domestic ethanol industry, said Jon Bjornstad, president of C & N Companies, a biofuel marketing firm from Minneapolis, Minnesota.
“The rail system has lost revenue because they’re not shipping unit trains of grain anymore. It is being processed at home,” Bjornstad told reporters after delivering a speech to delegates attending a Saskatchewan Biofuels Development Council workshop.
Read Also
Agriculture ministers commit to enhancing competitiveness
Canadian ag ministers said they want to ensure farmers, ranchers and processors are competitive through ongoing regulatory reform and business risk management programs that work.
That statement is at odds with reality, said Matt Hartwig, spokesperson for the U.S. Renewable Fuels Association.
According to the U.S. Department of Agriculture, the corn industry will be exporting more crop this year than it has in the past 18 seasons.
In addition to moving more grain for export, railways are increasingly being relied upon to transport corn around the country to biofuel plants and to ship out the end product.
Hartwig estimated 70 to 80 percent of the ethanol produced at the 130 plants operating in the U.S. travels to destination by rail, with the remainder moving by ocean barge or truck.
“We move a great deal of our (dried distillers grain) by rail as well,” he said.
Ideally, DDG gets consumed locally. But there is not enough demand in the Midwest so much of the ethanol byproduct is shipped to the large dairy and cattle operations farther west.
With increased corn exports and greater demand for moving feedstock into and end product out of ethanol plants, the railways are busier than ever, said Hartwig.
Larry Weber, analyst with Weber Commodities Ltd., doesn’t buy that explanation. He said more of the crop is being consumed close to where it was grown, which means less grain-based railway revenues, a conundrum that will soon be facing Canadian railways.
He estimated that once provincial and federal biofuel mandates are implemented in Canada, 20 to 25 percent of the prairie grain crop could be making its way into local processing plants, which is bound to impact railway revenues and rail service.
“You’re going to have less grain going to export. Less grain going to export is going to mean less rail car service,” he said.
Weber thinks it will exacerbate the tendency by railways to move grain in 100-car units, which will put more pressure on small shippers who are already in the midst of a level of service complaint against the railways.
“They’ll be trying to focus on larger spots and the pulse industry is going to take it right on the chin,” he said.
Canadian National Railway spokesperson Kevin Franchuk said it is not fair to speculate about what rail service will be like under a hypothetical set of circumstances.
He said the grain industry is evolving and CN is monitoring the changes to determine how it can continue providing customers with transportation services.
While the major agricultural commodity travelling on Canadian rail lines continues to be grain destined for export, the company’s business has undergone a transformation in the U.S., where CN has an extensive rail network in the Midwest corn belt.
“CN is heavily involved with the ethanol industry in the U.S.,” said Franchuk. “We’ve seen significant growth in both ethanol and (dried distillers grain) shipments from this industry.”
