Rail strike may further slow movement of huge West Canada crop

Reuters

By Rod Nickel

WINNIPEG, Manitoba, Oct 16 (Reuters) - A possible strike atCanada's biggest railway is compounding a vexing problem in thesecond-biggest wheat exporting country - how to move the westerncrop belt's abundant harvest to port with a strainedtransportation system.

A dispute between Canadian National Railway Co andits railroad workers raises the possibility of a strike orlockout as early as Oct. 29. Talks are scheduled to resume onOct. 21, with both the union and railway hopeful of avoiding awork stoppage.

"Whenever there's a labor disruption, it has a huge impacton us," said Wade Sobkowich, executive director of the WesternGrain Elevator Association, which represents grain handlers suchas Richardson International Limited, Viterra andCargill Ltd. "All grain shippers are concerned thatwe won't have sufficient rail capacity to move this large cropwhen we need to move it."

Agriculture and Agri-Food Canada estimates total cropproduction in Western Canada at a record-high 67.3 milliontonnes and transport infrastructure is already struggling.Canada exports about two-thirds of its wheat and more than halfof its canola.

Some farmers, waiting for congested country elevators toclear space, have piled grain on the ground, potentially riskingcontamination, while others are filling plastic silo bags thatsnake hundreds of feet across fields.

Some bursting-at-the-seams grain handlers, meanwhile, haveresorted to storing crops in temporary "bunkers" that resemblehockey rinks with boards along the sides, pipes to dry the grainand tarps protecting it from rain and snow.

Railways are filling about half of the grain car orderswithin the same week, a situation that isn't unprecedentedduring the harvest, but not ideal for moving crops quickly,Sobkowich said, adding that elevators are about 95 percent full.

A bottleneck in Western Canada's crop pipeline has alreadyexpanded the discount in the cash price grain handlers payfarmers versus the wheat futures price, according to cropmarketer CWB. It may also prevent some export sales as handlerslook to avoid penalties for late delivery, Sobkowich said.

Most of Canada's crop production comes from its westernprovinces, where farmers and grain handlers rely heavily onCanadian National and Canadian Pacific Railway to movecrops into export position on the Great Lakes or West Coast.

Effectively moving the big harvest will require all partiesalong the supply chain to work together, not just railways, saidCanadian National spokesman Mark Hallman.

CN expects to have a C$100-million ($97 million) upgrade toits capacity on the Winnipeg-Edmonton corridor in place by theend of November, Chief Operating Officer Jim Vena said inSeptember.

Canadian Pacific noticed strong rail demand from the grainsector before autumn, and increased the length of grain trains,said spokesman Ed Greenberg.

The railways are both offering a larger number of rail carsfor grain than usual, said Mark Hemmes, president of QuorumCorp, which monitors rail performance in the grain sector forthe Canadian government. But moving crops fluidly is also aboutmatching the specific needs of vessels lined up, he said.

"The railways are motivated to move as much grain as theycan, and they may have a tendency to grab grain from an originthat might not match what's required in that timeframe at theport. That's where we end up with congestion."

The bumper grain harvest comes amid a slump in offshoredemand for potash fertilizer, but coal movements at Port MetroVancouver are at a record high, said Doug Mills, senior accountrepresentative of trade development at Canada's largest port.

The projected record grain volumes and diverse profile ofthis year's wheat crop have led some vessels to anchor offVancouver Island to wait for cargo, Mills said.

The federal regulator Canadian Grain Commission (CGC) hasalso fielded inquiries from exporters about using BritishColumbia terminals that typically store less grain than others,such as Kinder Morgan's North Vancouver terminal, saidCGC chief grain inspector Randy Dennis.

Hemmes said he doubts much more of the Canadian crop thanusual will move through the United States. Grain handlers relyon the same two railways to move crops south, and it is costlyfor Canadian farmers to truck crops to U.S. elevators unlessthey live close to the border, he said.

Such a big crop caught some farmers off guard. Aroundmid-summer, when it became clear big crops were on the way,demand spiked for on-farm grain bins and portable handlingequipment.

"(There was) a mad scramble to buy it and get it installed,"said Daniel Donner, senior vice-president of sales and marketingat Ag Growth International Inc.

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