I had a great conversation with Mike Adams on AgriTalk this week. The topic was rail -- more specifically, the implications of a rail system increasingly seen by the agricultural community as shipping crude oil preferentially at the expense of agricultural product delivery and takeaway. We discuss what BNSF has decided to do in the face of high demand from crude operations as fertilizer demand adds pressure to shipping.
Our blessings have outrun our transport system in America, and the issue leads Mike and I to corn prices, planting progress and a range of potential peripheral impacts reminiscent of 2013'-14's propane distribution crisis. A complete transcript of our conversation follows. Listen to the audio below.
Mike Adams: Joining us now is Davis Michaelsen Associate Editor for Pro Farmer Inputs Monitor as we take a look at the struggle over rail service. Davis, thanks for joining us. I first started hearing about this from ethanol plants saying they couldn't get the rail service they needed to move the ethanol out and now we're seeing it grow into other areas of concern as well and a lot of it being portrayed as ag versus oil. Many in the ag community feeling the oil industry gets preferential treatment from the railroads. Is there anything to that?
Davis Michaelsen: It's hard to say Mike and it was a tough winter and remember the problems that we had moving propane around the country during the wintertime. A lot of that fell because of lagging pipeline infrastructure and the same is true of crude pipeline infrastructure although, shipments of crude by rail have increased significantly. In 2008, the Association of American Railroads reports about 9,500 carloads of U.S. crude oil was shipped via rail. In 2013 that number ballooned to 407,642 carloads of crude oil. So that's quite a significant increase just over a short period of time.
Adams: So those numbers tell you obviously the oil industry is tying up more of the railroad service so whether its meant to be preferential treatment or not just the volume is going to have an impact.
Michaelsen: Well that's exactly right and where the rubber meets the road really is up in the northern parts of the Midwest here. We heard from a North Dakota farm group leader who claims that they've got about 85% of the crop still in storage there and they can't seem to get enough rail cars to take away that crop and its starting to raise concerns over what happens at harvest. If there's too much grain in storage and it doesn't really have the rail support to take it away in the meantime... we are going to have a hard time storing it if we get a nice sized crop we're going to have tough time with storage.
Adams: And what about even delivery of maybe fertilizer shipments this spring?
Michaelsen: We;; BNSF reported last week that they, earlier this week actually that they intend to take moves to expedite fertilizers because they understand guys gotta have this stuff this time of year and so they're putting in some new measures. Handling unit fertilizers similar to that of grain shuttles, they're going to be able to service customers more easily with rapid load and unload capabilities. And so they are really trying to reach out and make sure that these fertilizer deliveries get to where they go.
Adams: Ya, this week the U.S. Surface Transportation Board issued a decision regarding freight rail service delays affecting North Dakota. That decision ordered Canadian Pacific Railway and BNSF Railway to report to the Surface Transportation Board by the end of this week their plans to ensure delivery of fertilizer shipments for the spring planting season and also to provide weekly status reports including delivery data and the number of cars associated with ag destinations. So is this a sign that at least the powers that be are taking this seriously?
Michaelsen: I believe so and, gosh I tell ya if farmers are unable to get a crop in the ground because of transport issues, that really sets us back. Ya know they are having just as much trouble up in Canada as well though they've got that bumper crop to move out from last year and they've got their own oil they want to ship so the industry is definitely going to have to start taking this seriously, and I believe with BNSF's announcement that they are going to dedicate a ton of money next year to infrastructure improvements, I think that's going to help out quite a bit.
Adams: This would not seem to be a short term problem though, I mean that oil boom is probably going to continue for a while so that demand for rail is going to be there and the farming season is just going to get busier do you see getting resolved anytime soon or is this going to continue to be a problem?
Michaelsen: Mike bumper crops are a blessing and a curse we've got so much oil so many resources that we've been blessed with that its really outrun our ability to transport it effectively from place to place. Now add to that increased agricultural demand for petroleum products, propane and things like that. Over the summertime you add to that Canadian rail problems getting nitrogen down here because they are shipping too much grain and crude around. We're kinda tied up in a knot here and its going to take awhile to get us untied.
Adams: And as I mentioned, we've certainly seen the impact on the ethanol industry as it has slowed their ability to move product.
Michaelsen: Yes it really has, and we've seen even some soybean plants around that just can't take any more because they simply don't have the takeaway capability.
Adams: Davis, doesn't this just point to the bigger picture here, we have infrastructure issues in this country that need to be addressed.
Michaelsen: Agreed. I tell ya what, ya know pipeline is a great idea however, it just can't get the product there fast enough. If you're transporting oil from the Bakken in North Dakota its gonna take about a week by rail to get it down to the Gulf Coast so refiners can use it or it can be sent out for export. It takes about 40 days for oil to make the same trip by pipeline. So rail is a much quicker way to expedite these supplies, but a bottleneck isn't doing anybody any good here on the grain side.
Adams: Well we've heard concerns for a number of years from those in agriculture about rail availability as well as costs and it doesn't sound like the situation is going to get a lot better anytime soon.
Michaelsen: No I'm afraid not and really what else is putting pressure on this is increased corn prices. If we are looking ahead to expected new-crop revenue, ya know we're up above that 750 dollar mark which is break even for a lotta guys. That's gonna bring in some fresh fertilizer demand when they had actually expected it to be low; we may have expected shipping delays anyway at this point on just unexpected heavy demand for P&K.
Adams: We're talking with Davis Michaelsen, Associate Editor for Pro Farmer Inputs Monitor, Davis, we're sitting here just kind of waiting as we've been talking about on the show today waiting for the weather to break and really the planting season to take off. Do we have the inputs in place already for when that happens or are we going to see a backlog?
Michaelsen: Well I've heard varying reports we've got some spot shortages I heard from over in Indiana last week that they couldn't get potash from their rail head and they were just going to have to wait -- probably two to three weeks. I backed that up with a phone call to a buddy of mine in Oklahoma who's into the importing business and distribution and he says as quickly as they are getting cargoes in they're going out the door. So there's definitely high demand here for fertilizers. Some places already have plenty on hand, others places are going to have a trick getting it.
Adams: And of course, as the way it usually works out, everybody wants it at the same time right?
Michaelsen: Well that's exactly right. We positioned Inputs Monitor readers early in March on anhydrous in particular. Now we saw some anhydrous rolling here last week here in central Iowa, the weather was nice and warm, it was sunny soil temperatures were up. I went around on Friday, this was on Thursday, on Friday I went around looking for somebody to take a picture of and couldn't find anybody in the field. They were looking ahead to this weekend of rain that we got and wound up with snow on Monday morning when I woke up so we're in stand-down here, and that really may be the best thing that can happen to us so we can have some time to get this fertilizer poisoned before we need to apply it.
Adams: Well here in Illinois I could have taken a picture for you; field right behind my house saw some anhydrous tanks rolling through. I could have taken that one for you yesterday.
Michaelsen: Well movement's been good. Down south in Missouri, we talked about some spot shortages down there in particular, but they're moving right along, and as warm temperatures move north, you know we are going to see those anhydrous tanks rolling through the fields.
Adams: Alright Davis, thanks a lot.
Michaelsen: 'preciate it Mike.