A price index on which the math is based for how much revenue Canada’s big two railways get to keep from handling Prairie grain will see an above-average raise for the coming crop year.
The Canadian Transportation Agency (CTA) on Monday pegged the volume-related composite price index (VRCPI) for the 2014-15 crop year at 1.3219, up 4.2 per cent from 2013-14.
Where the VRCPI has risen by an annual average rate of about two per cent per year since 2000-01, this year’s increase includes a 1.2 per cent increase covering “forecasted price changes for railway inputs” — plus another three per cent “correction” due to “the effect of replacing last year’s forecasts with actual data and incorporating these changes.”
The correction, the CTA said Monday, is “largely” due to the agency having “under-forecasted” the expected change in railway fuel prices for 2013-14.
The CTA’s 2013-14 VRCPI in turn had been pegged last spring at 1.2691, down 1.8 per cent from 2012-13 due to diesel prices that were “lower than forecast” in its 2012-13 calculations. [Related story]
The CTA noted Monday its forecasting models for the size of railway fuel bills rely mainly on “expert, third-party forecasts for the price of crude oil and the Canada/U.S. exchange rate” — on top of which the agency’s 2013 forecasts for the loonie against the U.S. dollar were “higher than actually experienced.”
A lower Canadian dollar makes for more expensive crude oil, a commodity purchased in U.S. dollars, the CTA said.
Volatility in both crude oil prices and the exchange rate make the price of rail fuel “very difficult to predict by expert forecasters and the (CTA) with a high level of accuracy,” the agency said.
The VRCPI, which reflects a composite of forecasted prices for railway labour, fuel, material and capital purchases, is one of “numerous factors” in the formula the CTA uses to calculate the big two railways’ annual grain revenue entitlements.
The grain revenue entitlements for Canadian National (CN) and Canadian Pacific (CP) Railways apply on movement of grain from Prairie elevators, or from U.S. origins, to terminals at Vancouver, Prince Rupert, B.C. and Thunder Bay, Ont. They also apply to CN’s and CP’s movements of grain bound for Eastern Canada or for export, up to either Thunder Bay or the CN station about 250 km north of the city at Armstrong, Ont.
Any grain freight revenue over and above the annual entitlement limits are paid into a fund benefiting Prairie grain research. The 2014-15 crop year begins this Aug. 1; the CTA must determine the 2014-15 freight entitlements by Dec. 31, 2015. — AGCanada.com Network