A grain industry analyst says there may be some truth to Canadian National Railway’s assertion that there isn’t enough grain in the system to meet the federal government’s shipping mandate.
Larry Weber, an analyst with Weber Commodities, said the numbers show the elevator system isn’t overflowing with grain despite last year’s record-shattering harvest.
The licensed capacity of primary elevators in Western Canada is 6.46 million tonnes, according to Canadian Grain Commission data.
Grain stocks on hand in the elevator system as of Sept. 21 were 2.7 million tonnes, which means 58 percent of the system was empty.
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Weber recalled his days as a trader with Pioneer Grain in the 1980s when it was a concern if the system was 40 percent empty.
“It justifies CN’s statement that, you know what, we don’t have enough grain,” he said.
But Wade Sobkowich, executive director of the Western Grain Elevator Association, said elevators are not getting the rail cars they need and he said Weber’s analysis should look at working capacity rather than licensed capacity.
The federal government is fining CN for failing to meet its legislated obligation to ship 5,000 rail cars of grain a week.
CN issued a statement claiming the penalties are unfounded because it is having a difficult time finding enough grain in the elevator system.
“CN was not quite meeting the new order in council minimum volume requirements for a period of time on account that weekly demand was consistently less than 5,000 hopper cars,” said the company.
The railway said country elevator stocks have been at or below the five-year average since the beginning of the new crop year Aug. 1.
However, Sobkowich said licensed capacity assumes every bin would be filled to the top with grain, which isn’t feasible. Working capacity, which is about 75 percent of licensed capacity, is a better measure of how much space is being used.
“We consider our elevators plugged when they’re at 75 percent of their licensed capacity,” said Sobkowich.
The federal grain monitor indicates the elevator system is operating at about 65 percent of its working capacity. However, Sobkowich acknowledged the system is not exactly jam-packed with grain.
“They can be fuller. They have been fuller. They’ve been up to 95 percent of capacity in the last year,” he said.
“That doesn’t mean the demand isn’t there. The grain is there. Our elevators are 65 percent full and orders are placed into CN and CP (Canadian Pacific Railway) regularly for rail cars to move out that 65 percent.”
Sobkowich said the amount of grain in the elevator system is a poor measure of rail performance because it ebbs and flows, and producers can deliver at a moment’s notice.
“The relevant measure is (when) we’re ordering rail cars, are we getting them and are we able to keep the system fluid?” he said.
The answer to both questions is “no,” he added.
“Clearly, more grain has moved this summer than it would have historically, but I continue to hear from my members that their weekly shipment needs are not being met,” said Sobkowich.
He scoffs at CN’s assertion that there are not enough orders to meet its obligations.
“We find it interesting to hear there isn’t enough demand on a weekly basis from shippers, but each and every week the grain companies are being asked to prioritize their outstanding orders due to the fact that they won’t receive all the rail cars they need,” said Sobkowich.
CN said grain transportation has vastly improved from the situation last winter. Stocks at port position are 20 to 30 percent higher than the five-year average, and west coast terminals are nearly full, operating at 96 percent of working capacity.
“The grain necessary to load vessels at the ports is available at the coast,” said CN.
The company has exceeded federal government targets by more than one million tonnes since the inception of the order in council.
“CN hopes the federal government, after a careful review of the facts, will recognize this positive state of affairs and turn the page,” said the company.
Weber said grain companies can’t be absolved of their share of the blame for Canada’s wretched grain transportation reputation.
The decades-long consolidation of the grain handling system has not delivered the efficiencies promised by the grain industry.
“We’re worse off today than when we had plants all over the place,” he said.
New high-throughput elevators were built to be turned 10 times, which means handling 10 times their capacity per year. Today’s system-wide turnover ratio is 6.4, a far cry from what Weber believes is possible.
He wonders why Canadian elevators operate eight hours a day when he knows of a Cargill elevator in Eddyville, Iowa, that runs 24 hours a day.
The Cargill plant handles 350 trucks a day with an average of 27 tonnes of grain per truck. That one plant can ship out 3.3 million tonnes a year.
“We’re not doing that because we’re running (plants) eight hours a day and it’s not managed properly,” said Weber.
“We get a crusher (shipping) one million tonnes and send them all a plaque for doing so well.”
Sobkowich said throughput is limited by the size of the crop and total capacity in the system. More importantly, it is limited by rail service.
He said grain companies operating in Western Canada have invested for efficiency by downsizing from 1,120 licensed elevators in 1999, many of them wooden crib elevators, to about 350 largely high-throughput elevators.
“We didn’t remove equity from the system; we made investments in the system,” said Sobkowich.
“The railways were able to remove equity from the system by reducing their fleet sizes, reducing their crews and reducing their locomotive power.”
