Canadian Grain Shippers, Railroads Brace For Lower Grain Volumes

Canadian grain shippers expect rail service to match demand this crop year, although lingering service issues from summer wildfires plus broader network capacity concerns are also on their minds.

Grain stakeholders anticipate lower volumes this crop year, which runs from Aug. 1 to July 31, 2022, as this summer's drought in western Canada will likely lower crop volumes.

The U.S. Department of Agriculture expects Canadian wheat production to be its lowest since 2010-2011, resulting in lower export volumes. USDA also anticipates lower volumes for canola and barley, according to its monthly supply and demand estimates report from last Thursday.

As a result of lower anticipated yields, many grain shippers foresee getting the railcar orders they need to ship grain for the domestic market and for export, especially since the 2020-2021 crop year that was just completed this past July broke grain volume records for multiple months for CN and Canadian Pacific.

"Regardless of the size of the crop, we want to move as much of it from harvest until March or April as we can, since that is when our buyers demand Canadian grains and when we can command the highest premium," said Wade Sobkowich, executive director for the Western Grain Elevator Association.

But grain shippers are watching how speed limit restrictions that will be in place until Oct. 31 will affect how much export volume makes it to the western ports. Transport Canada slowed train speeds on lines between British Columbia communities Kamloops and Boston Bar and between Kamloops and North Bend over concerns that train operations could set off wildfires.

The restrictions, which began in July, call for Class I trains to reduce train speeds to 25 mph in areas where track speeds normally are between 26 mph and 35 mph. Train must also slow down by 10 mph if the permitted train speed is greater than 36 mph. These restrictions apply when the air temperature is 86 to 90 degrees Fahrenheit and the fire danger for the area is "extreme."

Rail service in August is still recovering after wildfires from earlier this summer curtailed operations briefly, according to Greg Northey, vice president of corporate affairs for Pulse Canada.

"Rail service returning to normal is always a consistent theme, whether it is due to strikes or weather events. We will always continue to monitor it, and we need long-term planning to ensure predictable and reliable rail service at all times, including after a disruption," Northey said.

The ongoing container shortage is also a concern since between 30% and 40% of Pulse Canada's members ship grain via containers, he said.

"The lack of containers remains the most acute impediment to exports," Northey said.

Although grain shippers expect lower volumes this fall, shippers are also keeping their eye out on where there might be potential long-term network constraints, so that the rail industry and its stakeholders may be able to address where and how to fix potential capacity shortfalls.

For instance, although the railway network was able to handle record volumes of grain and grain products in 2020-2021, that was partly because other commodities were moving fewer volumes.

"In the last year, we believe that grain exports have been the beneficiary of reduced demand from other sectors and from a very mild winter that has limited weather-related disruptions," Sobkowich said. "According to Port of Vancouver statistics, the 2020 shipping season saw very sharp reductions in port activity for the automotive, coal and foreign breakbulk sectors. Conversely, grain shipments grew by 28% for the year."

He continued, "What is going to happen as things return to normal and other sectors throttle up again? What will happen in 2021-22 if we have a normal winter? What if we have a railway work stoppage, or if blockades flare up again?"

Canadian Pacific's And CN's Grain Service Expectations

Canadian Pacific and CN have both said they anticipate meeting grain shippers' needs, even as volume expectations for this year might be lower than the yields of past years.

"CP is well-positioned to move grain in the 2021–2022 crop year. We expect to move in excess of 30 MMT [million metric tons] of grain and grain products this crop year, which is aligned with last year's forecast and the volumes we transported," CP (NYSE:CP) said in a 2021-2022 grain plan that it submitted to Transport Canada late last month.

CP noted that weather conditions, such as above-average temperatures and persistent dryness earlier this summer, may translate into lower crop volumes in 2021-2022.

Nonetheless, the railway plans to supply 6,000-grain hopper cars to country elevators each week from August through mid-December and then from April to July, subject to market demand. CP also plans to supply 4,350-grain hopper cars in the winter months when the Port of Thunder Bay is closed. Overall, CP plans to make available 1,050 to 1,150 locomotives, approximately 15,500-grain hopper cars, and 3,950 to 4,050 train and engine employees throughout the 2021–2022 crop year, CP said.

CP has more than 4,600 owned and leased high-capacity hopper cars in active service, with an additional 1,600 hopper cars anticipated by the end of 2021.

The railway said it is also prepared to handle volume surges, whether they occur on CP's or on others' networks.

"Within reason, CP is well-positioned to accommodate unexpected surges in volumes caused by challenges experienced by other rail carriers, non-rail participants in the supply chain or adverse weather," CP said. "While CP does not currently expect any particular supply chain challenges, we note that network service disruptions do not occur in a vacuum. Rather, they are the product of multiple factors throughout the supply chain. As a result, CP will continue to work with our interchange carriers and other participants in the supply chain to maintain interchange fluidity, optimize loading and billing, and balance car cycle flows."

CN (NYSE:CNI) also expects lower grain volumes in 2021-2022. But it says it is continuing to make investments to expand network capacity. It recently acquired 1,000 additional high-capacity hopper cars as part of a broader three-year renewal program to acquire 3,500 hopper cars. CN hopes to have 6,000 high-capacity hopper cars by the time CN completes its hopper car modernization program.

"CN expects to move, over the course of the 2021-2022 crop year, 25.5 to 28.0 MMT of grain and processed grain products via carload. This forecast is in the range of the past three crop years but below 2020-2021 levels due to a material reduction in total available grain supplies year over year. Grain volumes moved using intermodal equipment are in addition to this level of projected shipments," CN said.

Among the capital improvements, CN has taken to expand western grain network capacity are long siding additions on the Edmonton-Prince Rupert corridor; multiyear capacity enhancements to support traffic at the ports of Vancouver and Prince Rupert; two new export terminals at the Port of Vancouver; and 150 miles of double-tracking since 2018.

CN will be updating its 2021-2022 grain plan monthly.

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