Sending wheat by rail to Mexico makes farmers good money.
Too bad the Canadian Wheat Board can’t find enough cars to get the grain there.
“We’re maximizing what we can ship there by rail, and once that capacity’s gone, then basically that’s it,” said CWB wheat and barley marketer Rhyl Doyle.
CWB wheat sales to Mexico this crop year will be less than half of what they could be, Doyle said, because the board can’t find rail cars. Shipping by ocean to Mexico is too expensive.
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“For us to compete by using a vessel … it would be much lower than we could get selling that same wheat into other markets,” said Doyle, who spoke at the University of Manitoba Transport Institute’s Fields on Wheels conference.
Doyle said there is a core group of Mexican millers who always order wheat by rail, but beyond that 200,000 tonnes, it’s impossible to find rail cars.
It wasn’t always this way. From zero rail shipments in 1998-99, volume grew yearly for the next four years. In 2003-04 the CWB shipped more than 700,000 tonnes of grain by rail to Mexico. And the railways loved the business.
“There was a time there when if you wanted cars for Mexico, whatever you wanted, the railroads were all over it,” said Doyle.
“I think railroad salespersons’ bonuses were decided by how much volume they could get to Mexico, so they were falling over themselves in this period to get volumes,” he said with a laugh.
But the huge rail program in 2003-04 was a bit too much for the system, and “that was the year when we really had a lot of problems.”
Those included mechanical problems because of cold weather and big delays in getting grain delivered and the cars returned.
“Then the appetite for rail started to go on the decline after that.”
Canadian Pacific Railway seems reluctant and the board has received no information about cars available for this year from Canadian National, Doyle said.
It is possible the railways don’t like hauling to U.S. transfer points, where they turn over the grain cars to other railways that connect to Mexico, because those rates are set in U.S. dollars. Sending the same cars to Canadian ports allows them to charge their Canadian rates, which with the dollar’s increased value makes them more money, Doyle speculated.
And once the railways turn over the cars, they collect no more freight charges.
Also, there appears to be haggling between the various railway companies in the U.S. right now, so deals aren’t easily made.
It’s a vexing situation for the CWB, which sees good returns for farmers from railed wheat, but can’t find the cars to get it there. Doyle said the CWB is trying to send as much as it can by the Burlington Northern Santa Fe line that runs into Winnipeg, but there is limited capacity there.
Mexico wants board grain but it can’t be affordably shipped by ocean vessel. U.S. grain is sent by rail to Mexican millers, and right now ocean rates are far higher than rail rates, so CWB grain would need to be discounted in order to get to the market at a competitive price.
But since overseas buyers offer better prices than Mexico, that wouldn’t make sense. Once the rail route is at capacity, Mexican sales may end.
“It’s just become prohibitive for us to ship to Mexico by vessel,” said Doyle. “However, we can still ship to them by rail and earn a good return on the wheat, but with the railways having a captive amount of cars that they’re willing to provide, it allows us to ship not even half of what we did last year.”
