Prairie shortline railways look ahead to new reality

The looming end of the Canadian Wheat Board’s single desk for marketing wheat, durum, and barley in Western Canada on Aug. 1 may lead to changes to the shortline railways in the region.

The shortlines predominantly move CWB grains, but industry participants expressed confidence in their viability and the continued use of producer rail cars along those lines.

Many of the 14 shortline railways found across Manitoba, Saskatchewan, and Alberta primarily deal with moving producer cars, which are loaded by farmers marketing grain through the CWB.

In 2010-11 farmers loaded 12,784 producer cars, just short of the record set two years earlier, according to CWB data. Of that total, about 97 per cent of the cars were filled with CWB grain.

Producer cars are rail hopper cars that farmers can order to load themselves at a rail siding or a loading facility located closer to home than the nearest grain terminal. Most producer car loading facilities and connecting shortline railroads are owned by farmers in co-operatives or joint ventures.

"There will be some bumps in the road, but we’re excited," said Conrad Johnson, chairman of Great Western Railway and president of the Saskatchewan Shortline Association. "It will take a little work, but we see our movement increasing — not decreasing.

"We’re seeing an extreme amount of interest from smaller companies, some we’ve never heard of, who would like to source specific qualities of grain from specific areas along our line," said Johnson, noting producer cars are able to provide traceability for customers looking for identity-preserved grain.

Most of the interest is in moving wheat and durum, but Johnson said pulses and other special crops were also moving along the line in dealer cars, rather than the traditional producer cars.

"There will be some shortlines that don’t survive in the new environment, but they likely wouldn’t survive no matter what the environment," said Johnson adding that "it will be different, but it will be all right."

For people who like the old system of selling producer cars through the board, that system will still be there, said Johnson, and the only difference will be that now each car will be going to a specific sale, rather than the general pool. That means farmers will need to show more discipline in loading what they want.

With CWB wheat and durum accounting for most of the grain moving on the shortlines, it remains to be seen whether farmers will want to continue dealing with the new voluntary CWB, said Matt Enright, grains manager with Alberta-based Battle River Railway.

"If they are, we’ll continue to move quite a bit of Wheat Board grain," said Enright. His railway is also working on partnering up with other grain companies to move non-board grains, and have moved small amounts of canola in the past. "It could boil down to whether or not the farmers want to deal with the (new voluntary) CWB."

"Key driver"

Larger grain companies all have their own terminals and are generally not that excited to be buying producer cars from the shortlines as they would rather pocket the handling fees through their own facilities, said Enright.

However, he said, his company was in talks with the grain handlers and a number of smaller grain companies have expressed some interest.

"The key driver of whether or not producer cars will continue to be used is whether or not they pencil out for farmers," said Enright. Currently, a farmer could ship all his or her canola through producer cars, but it doesn’t make sense from a financial standpoint.

"We’re constantly working to find alternatives for guys to ship producer cars," said Enright, noting all options are on the table going forward, including becoming a grain company of their own, building facilities, and/or partnering with a grain company.

In addition to the infrastructure, Enright added that the biggest asset of the Battle River shortline is the committed group of farmers who are also owners in the co-operative.

The farmer investors want to see it succeed, he said, and will find a way to do that, only "we’re not sure what the way will be."

Federal legislation passed in December 2011 will see the CWB’s longstanding single desk for marketing Prairie wheat, durum, and barley end at the start of the 2012-13 crop year on Aug. 1.

The CWB will continue operations as a voluntary grain marketer, and intends to offer a number of options for producers including price pools.

The CWB, which owns no grain terminals or port facilities of its own, also recently reached a handling agreement with the Canadian arm of U.S. agrifood firm Cargill, itself the third-biggest grain handler in Canada.

The CWB is expected to announce arrangements with other grain companies in coming weeks.

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