America’s Snarled Railroads Are the Latest Hit to Farmers


Every day, millions of sailors, truck drivers, longshoremen, warehouse workers and delivery drivers keep mountains of goods moving into stores and homes to meet consumers'increasing expectations of convenience. But this complex movement of goods underpinning the global economy is far more vulnerable than many imagined.

Congestion on America’s railroads is disrupting operations for farmers and agriculture companies, industry officials said, potentially pushing up food prices.

Delayed trains and scarce railcars are impeding crop shipments this spring, causing grain storage facilities to fill up, backing up fertilizer shipments and temporarily shutting down production at ethanol producing plants, company executives said. Railroad operators said they are working to fix the problems but struggling to find enough workers.

The railroad slowdown has grain companies looking for other ways to move farm commodities across the country,leading to higher transportation costs that company officials said will ultimately increase food prices for consumers. Food globally is already becoming more expensive, with food makers paying more for fuel, ingredients and labor.

Photo Green Plains INC.jpg

A Green Plains facility in Madison, Ill. The producer of ethanol and animal feed ingredients started seeing rail disruptions at the end of last year.

Photo: Green Plains Inc.

“We are seeing a disruption across the industry from top to bottom,” said Todd Becker, chief executive of Green Plains Inc., GPRE 1.97%▲ a major producer of ethanol and animal feed ingredients. “Transportation is a big driver of food prices.”

Green Plains, based in Omaha, Neb., first started seeing rail disruptions at the end of last year, Mr. Becker said, but the problems intensified between January and April. In the first quarter of this year, several of the company’s plants west of the Mississippi River had to stop producing ethanol for several days at a time because of the rail problems, he said. Green Plains has leaned on trucks as a more expensive, but sometimes more reliable, way to transport its ethanol.

The railroad companies attribute the service problems to worker shortages and high demand. The companies have said they are making headway on staffing issues as they ramp up hiring. Union Pacific said last week during its latest quarterly earnings report that operationally it didn’t meet expectations and is working to increase crews and locomotives where needed.

“Clearly, the entire rail industry is in a place where we’re, as a collective, not providing the kind of service that our customers demand,” Union Pacific CEO Lance Fritz said on a call with analysts. “This is all about getting our labor right, getting utilization right, making sure the other resources are ready and then executing.”

Weekly grain train speeds are down 6% from the same period a year ago for major freight railroads, according to an April 21 report from the Department of Agriculture. Dwell times, which measure how long a car remains at a terminal, are up 22%, and the number of grain cars not moved in over 48 hours is up by nearly one-third, the report said.

The delays make shipping more expensive. For the week ending April 14, bids for railcar delivery in April reached $3,750, over $3,000 above average, according to the USDA report.

Rail shipments from Iowa to the Southwest that used to take about 8 days for a round trip are now running about 20, said Eric Wilkey, president of Arizona Grain Inc., a grain company in Casa Grande, Ariz. The backlog has delayed shipments of livestock feed to Mr. Wilkey’s customers in Arizona, and he is having to pay more to ship grain by truck or pay steep premiums to secure additional railcars, he said.

“If I have to pay a premium to get railcars, I’ll have to lower my bid to farmers to cover extra freight costs,” Mr. Wilkey said, referring to the prices Arizona Grain offers to farmers for their crops. If the congestion continues through the next month, Mr. Wilkey said he isn’t going to be able to buy as much grain from farmers.

Railroad congestion and labor constraints have led to issues for Land O’Lakes Inc., a major farm cooperative, receiving bulk ingredients for its Purina animal feed business and delayed shipments of butter from California, according to a person familiar with the matter.

The National Grain and Feed Association, a trade group representing grain companies including Archer Daniels Midland Co., Bunge Ltd. and Cargill Inc., has raised concerns about the congestion problems in the U.S. with the Surface Transportation Board, which regulates freight railroad operations.

Source -"The Wallstreet Journal"