U.S. railcar crunch makes crop storage critical: CHS chief

A freight train at Manchac, La., about 75 km east of Baton Rouge. (CN.ca)

Chicago | Reuters — The U.S. transportation network is inadequate to cope with bumper crops due to be harvested this season, creating a critical role for storage operations, the head of CHS Inc., a leading agricultural co-operative, said Friday.

Farmers, who had already struggled with a tight supply of railcars delivering fertilizer this spring, will need to put away some of their upcoming corn and soy harvests in storage bins due to continued competition with crude oil for space on the rails in the northern Plains, CHS CEO Carl Casale said in an interview.

The ability to transport grain is key for grain companies like Minnesota-based CHS, Archer Daniels Midland and Bunge because they sign deals to deliver crops to certain locations at certain times. That undertaking is set to become even more challenging this year because massive harvests will increase the demand for railcars and barges.

“There’s currently not the capacity to move this crop to market as it comes off,” Casale said.

The comments will fuel concerns that farmers will struggle to get their crops to customers after the U.S. Department of Agriculture, in a monthly report on Tuesday, projected the U.S. corn harvest at a record 14.032 billion bushels and the soybean harvest at a record 3.82 billion bushels.

Many analysts expect the government will increase its production estimates further in the coming months due to favorable crop weather.

“In the short term, storage is going to be the buffer that’s going to allow this crop to basically get in,” Casale said. “Physical supply chain management is where value is going to be created in grain, because that’s what the industry really, really needs right now.”

Commercial traffic on the Mississippi River, the main shipping waterway for grain moving from Midwest farms to export facilities at the Gulf of Mexico, already ran into trouble this summer when a section in Minnesota was shut for emergency dredging following floods.

In response to challenges on the rails and river, grain handlers are increasingly relying on trucks to move crops, Casale said.

The radius in which trucks are cost effective for moving grain has expanded because “everything else is either unavailable or has gotten a lot more expensive,” he added.

Aside from transportation troubles, falling grain prices are encouraging farmers to make plans to put crops in storage. Corn prices are down 13 per cent this year and 24 per cent from a year ago at about US$3.65 a bushel on the Chicago Board of Trade.

— Tom Polansek reports on ag commodity markets for Reuters from Chicago.

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