U.S. Railroads Are Also Losing Grain Traffic

Add grain to the list of commodities that railroads aren’t hauling as much of anymore. But unlike coal the falloff in grain traffic is due to increasing levels of grain being hauled by trucks or coming from foreign lands.

Grain traffic is still a substantial market for railroads and in 2014 U.S. railroads carried 140 tons of grain.

train image2But bulk grain shipments to Gulf of Mexico and Pacific Northwest ports are falling as U.S. wheat continue to lose world market share.

The railroad share of grain hauling has declined by about 50 percent since 1980.

Last year U.S. railroads hauled 1.1 million carloads of grain, which the Association of American Railroads said is an increase of 3.4 percent over 2014. Nonetheless, grain traffic thus far in 2016 has fallen more than 4 percent.

“Our export volume is really taking a dip with the strong dollar and especially with the Argentine peso being devalued,” Randy Gordon, president of the National Grain and Feed Association, told Trains magazine. “These markets all basically trade in U.S. dollars.”

Argentina President Mauricio Macri ended export taxes on corn and wheat and let the peso float free from the official rate of fewer than 10 pesos to the U.S. dollar.

With the exchange rate of the peso now more than 15-1, Argentine products are now a better deal and buyers have taken notice.

Truckers, though, are not necessarily hauling grain to the Gulf or the Pacific Northwest for export.

Doug Story, vice president of agricultural marketing for regional rail operator Watco Companies, said the increase in the trucking of grains has been in local hauls.

The U.S. Department of Agriculture in 2013 reported trucks had captured market share away from railroads in corn grown for ethanol and soybeans hauled to biodiesel manufacturers.

USDA said that those industries usually are located close to farms with 90 percent of ethanol production situated within 50 miles of corn-producing areas.

Trains reported that although the ongoing concentration of animal feeding operations tends to favor railroads, an increasing portion of that market has gone to “dried distiller grain with solubles,” a by-product of ethanol production that can be hauled by truck.

However, Watco’s Story said there is “nothing crazy or outlandish with what’s going on here. It’s just market conditions, the value of our commodities relative to the rest of the world, and the strength of the dollar.”

When the market does turn, Story said, “the positive thing is we’re coming off a good harvest, and so we’re sitting on a tremendous supply for when the market is going to turn and allow product to move.”

Although not good news for railroad revenues, the downturn in coal and crude oil traffic has benefited the movement of grain by rail because track capacity is not as jammed as it was following the harvests of 2013 and 2014.

Add that to a brutal winter and moving grain by rail became a major challenge during those years.

“Virtually across the board they reported very few if any shipper issues,” Gordon said of last fall’s harvest and haul.

“Car availability is fine,” Story says. “If you look today at the Class 1s and how they’re moving [unit train grain] shuttles, they’re probably moving as fast as ever.”

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