Let’s say you’re farming 6,000 acres and producing 4,000 tonnes of grain that are typically going into the concrete elevators located some 50 miles away. You’ve heard of trucking premiums being offered to some of the folks down south but whenever you’ve brought it up with the elevator manager, you’ve been told they’re not available in your area. Meanwhile, you’re paying to get your grain hauled and the Super-B traffic on your municipal roads is taking a terrible toll. There are fewer and fewer producers in your area so you know your share of the cost of fixing those roads is only going up…
Maybe loading producer cars is an option you should consider. Every indication is that a lot of your neighbours are. In the late 90’s, the number of producer cars being loaded on the Prairies hit a low of 3,000 annually. Since that time, there’s been a steady increase and in the past year, the number of producer cars hit an all-time record of 12,447. That’s over a million tonnes of grain.
Why the rebirth of interest in producer cars? Cost savings is the first reason that springs to mind. When elevation charges are $13 to $14 per tonne, loading a car yourself translates into a healthier bottom line. Going back to the numbers at the start of this piece, the hypothetical farmer with shipments of 4,000 tonnes could end up with as much as $50,000 more in their jeans by loading every single bushel designated for the commercial system into producer cars. That’s enough to make a difference on the operating loan or the debt-servicing ability of the farm — something that is sure to please the banker and the accountant. There may even be enough left over for some hardwood floors in the living-room or a trip with the kids before the busy season starts: in other words, there may be shareholder benefits, too.
The producers who load their own cars, however, are only too aware that this isn’t easy money. The availability of railcars for loading is the first issue. They are sometimes a long time in coming and when they arrive to be loaded, it can be at the most inconvenient times (think Mother’s Day). What if you put too much grain in the car? You’ll end up being penalized for excess weight. If you don’t load enough, you end up paying freight for grain you never shipped. And you may be shipping a car of #1 CWRS high protein but what if it is downgraded at port? At least when you are delivering to a commercial facility, you know right then and there what you’ll be receiving for grade and dockage, not to mention that you’ll get payment right away. Producer cars bring an element of uncertainty to marketing grain that some farm managers just don’t like.
Not surprisingly, good old-fashioned innovation has stepped in to address some of the challenges that producer car loaders typically face. West Central Road and Rail (WCRR) is a case in point. It operates a number of producer car loading facilities along a branch line in west central Saskatchewan. That line, at one time, was slated for abandonment. But in 1997 producers in the area rallied to demonstrate its viability by loading an entire unit train of producer cars. This lead to the creation of WCRR, a company devoted to the loading and shipping of producer cars where the majority of producers are themselves shareholders of the company.
A FULL-SERVICE LOADING SITE
WCRR president Rob Lobdell, a farmer from the Eston area, boils the challenges of producer-car loading down to efficiency, convenience, speed of payment, inability to blend and uncertainty at port. He explains that on these fronts, WCRR has come up with workable solutions that have direct benefits for producers. First of all, the construction of actual facilities along the branch line that runs west from Delisle enables it to gather grain in sufficiently large blocks to maintain rail efficiency.
“We can load between 25 to 34 cars at any one of the four facilities that we currently operate,” Lobdell says. “We operate on a one-bin, one-car basis. If we have a 30-car spot, we put in 30-cars worth of storage. We have delivery and shipping capacity of 540 tonnes (20,000 bushels) per hour. Our bins are smooth-walled hoppers that will load one car each. This facilitates clean-out and identity preservation of the grain from the farm to the port. We also have a 100-foot truck scale on site.”
The cost of one of these facilities when WCRR began building them back in 2001 was just over $2 million. Their construction was financed through a series of share offerings to interested investors. There are four of them currently up and running at Laporte, Eston, Lucky Lake and Beechy, Saskatchewan. WCRR wants to add two more, one in Dinsmore and the other in Elrose. The construction costs have nearly doubled and are now slightly under $4 million.
ENHANCED PRODUCER CAR PROGRAM
Lobdell is quick to point out, however, that the real backbone of WCRR is not its facilities but rather the way it optimizes the value of the grain that producers deliver through what it calls its Enhanced Producer Car program. This is a program that WCRR offers to all producers across the Prairies, whether they deliver their grain directly to one of its facilities or they use their own trucks and augers to fill a car at a siding anywhere in Western Canada. Here’s how the program works:
Step 1: In the fall, producers send a sample of their grain to WCRR to have it tested. “We want to know every quantifiable attribute of the grain,” says Lobdell, “anything from HVK to smudge to green frost damage to ergot.”
Step 2: Next, all the test data is entered into WCRR’s optimization software. This takes the traits of the samples that producers have provided, matches it up with the values that are available
for the various grades and grains and looks at how the value of the grain can be optimized.
Step 3: WCRR’s optimization software spits out a recommendation.
Step 4: Based on this recommendation, WCRR offers a contract to individual producers guaranteeing them a given grade and protein level for all their grain. The one condition: the grain has to be brought in on spec. If so, producers receive the value that is stipulated on the contract they have signed with WCRR. “This took some getting used to for producers,” Lobdell says, “because there aren’t many grain companies that offer guaranteed contracts like this.”
Step 5: Producers load their cars. Upon receipt of the individual producer’s delivery sample, WCRR issues 90 per cent of the producer’s payment. The delivery sample, according to Lobdell, has proven to be close to 99 per cent accurate in terms of resembling what was originally submitted and contracted.
So while building facilities deals with the efficiency and convenience issues, WCRR’s Enhanced Producer Car Program tries to take the risk and uncertainty related to how the grain unloads at port out of the equation. The result, from Rob Lobdell’s point of view, is producer car loading without many of the pitfalls that people have encountered in the past.
A SMALLER-SCALE OPTION
There are other ways to skin the same cat. In Southern Manitoba, producers along the locally-owned Boundary Trails line have established a smaller-scale facility and have plans to build two more as soon as seeding is over this spring. The existing site is located at Darlingford and is made up of six 100-tonne bins, a drive-over unload area, a scale and a car-puller to facilitate railcar movement during loading, all for something in the $300,000 range. Two part-time employees take care of the facilities and load the cars when they come in. According to Travis Long, the General Manager of the Boundary Trails Railway Inc., producers wishing to ship grain through the Darlingford facility order the cars through him. They will then contact the staff at Darlingford to make arrangements for delivering the grain. An individual producer’s responsibility for the grain ends once it has been delivered. The facility loads the grain and releases the cars when they are ready. For this service, the Darlingford facility charges $300 per car. These fees will be under review when the crop year is over to determine if they are sufficient to cover the costs of operating the facility. As mentioned, two other facilities are in the works for the Boundary Trails line, one at Manitou, the other at Binney, which is right at the end of the line. When all of the facilities are in place, Long says the line hopes to see them loading at least 500 producer cars annually, this in addition to the 200 to 300 cars that may be auger-loaded at various sidings along the branch line. He also notes that the loading facilities are separate and distinct from the Boundary Trail Railway. A group of 10 producers in partnership with Mission Terminal built and operate the Darlingford site.
This is a model that producers in the recently formed Riverhills Railroad Inc. group are considering as well. They have come together to try to buy the line that runs from Rathwell to Nesbitt that Canadian Pacific is talking about abandoning. The chair of the group, Harold Purkess, says they would need to load about 600 cars per year along the line to make it economically viable. Purkess says that, based on provincial government numbers, this represents about 25 per cent of the grain that is normally loaded out of the area. Purkess recognizes that savings accruing to producer car loaders is one of the main reasons for trying to save the rail line. But he also talks about the jobs that Riverhills Railroad Inc. hopes to create in taking it over (he estimates 12 to 15 full-time jobs may be created) and the transportation infrastructure that it preserves for the future.
One other thing that many people mention when the topic of producer cars is raised: trucking premiums. In some parts of Western Canada, trucking premiums are as high as $14 per tonne. It makes sense that the highest premiums correspond to those areas where competition between various grain delivery options exist. Producer car loading, whether an individual producer uses it or not, is one of those options that force the concrete elevator owners to sharpen their pencils. Coming back to our example, the farmer with the 4,000 tonnes of deliveries probably didn’t have much producer car loading activity going on in his area. If there was, chances are trucking premiums would be on the table. Producer car loading — whatever else it does in terms of lowering costs and lessening the wear-and-tear on roads — also provides an important safety valve when consolidation in the grain industry threatens to make farmers captive to only one or two outlets for their grain.
Rhéal Cenerini is a farm writer based just outside La Salle, Man.