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Trains for grains scarce on the U.S. Plains

A aerial image shows a train entering a depot along the Burlington Northern Santa Fe (BNSF) rail line outside of Williston, North Dakota in
A aerial image shows a train entering a depot along the Burlington Northern Santa Fe (BNSF) rail line outside of Williston, North Dakota in

By Karl Plume

(Reuters) - In the northern U.S. Plains, where there are no commercially navigable rivers, the U.S. rail system long has served as the lone, dependable way for farms to move grain hundreds of miles to reach ports and sell around the world.

Not any more. Farmers in North and South Dakota, Montana and Minnesota are holding the largest grain stocks in years after months of worsening delays that crippled the backbone of the U.S. farm transportation system. Rail operators blame the snarled service on the coldest winter in decades and changing freight flows.

Yet the delays are growing in some areas even as spring sets in, fueling renewed ire at oil companies that are increasingly competing for space on the same rails.

Farmers are scrambling to find storage space as they prepare to harvest the winter wheat crop in the coming weeks, and some are changing their spring crops to avoid high-yield corn, which takes up more space in silos than wheat. Others are taking on the extra costs of trucking their harvest to far away markets.

The trouble is now rippling through the agricultural economy, disrupting grain processing at mills and leaving cereal and food companies short of supplies.

A study conducted by North Dakota State University found that rail congestion could cost farmers in the state more than $160 million because the grain glut depressed local prices: $66.6 million in lost wheat, corn and soybean revenue from January to mid-April and an expected $95.4 million more in losses if their remaining inventory gets stranded.

At Southwest Grain, a 3,500-member farm cooperative granary based in Taylor, North Dakota, general manager Delane Thom worries there will be no hopper cars at his three loading terminals as the winter wheat harvest starts to come in.

Railroad BNSF has yet to deliver about 500 cars that he was promised in February and March, Thom said.

"All you have to do is look out the window to see all the tanker trains going by taking up track space," Thom said.

The 30-year-old granary has 9 million bushels of grain in storage, mostly milling wheat and durum. When BNSF does send a 100-car train, it takes only two days for nearby farmers to replace the 350,000 bushels it carries off.

"Once they hear that there's space available, they really get after it," Thom said.

BNSF, a unit of investor Warren Buffet's Berkshire Hathaway Inc declined to comment on Southwest Grain. It said it was committed to catching up on railcar past-due orders before the fall harvest and had brought in extra trains and crews.

OIL ON THE TRACKS

Some farmers and agriculture groups say rail operators are disregarding their demands in favor of an appealing source of new revenue: the U.S. oil industry.

U.S. rail shipments of crude oil have surged 44-fold since 2008, much of them criss-crossing the heart of the High Plains wheat belt from North Dakota's Bakken oil fields to coastal refiners. Trains carry two-thirds of 1 million barrels of crude produced each day from the Bakken, where pipelines are scarce.

"Unfortunately, agriculture does not seem to be a priority for CP and BNSF," Roger Johnson, president of the National Farmers Union, told the U.S. Surface Transportation Board on April 10. "It seems that oil, coal and container shipments are ahead of grain in the list of shipping priorities,"

The National Grain and Feed Association said rail companies do not provide enough information to dispel concerns. For example, BNSF publishes data about its service performance for agricultural commodities, but does not publicly disclose its on-time performance for oil-by rail shipments.

BNSF said the company does not favor shipments of one commodity over another.

Whatever the cause of delays, BNSF and other rail companies operating in the region have faced difficulty delivering cars this year to customers wanting to ship their goods.

The 20-day wait for cars from BNSF was four times the norm this winter, and the long wait times have not eased through mid-May and in some cases have grown. (Graphic: http://link.reuters.com/bef39v)

The delays have contributed to an accumulation of huge stocks of grain, with North Dakota's corn stocks hitting a record of more than 192 million bushels on March 1 and wheat stocks at their largest in three years, government data showed.

BNSF, which handles nearly half of all U.S. grain, plans to invest a record $5 billion this year on its network, including $1 billion in the northern states.

"Gains may be bumpy and uneven, but we will continue to gradually improve service," John Miller, group vice president for agricultural products at BNSF, said in a statement to customers last week.

But early this month, the wait time for customers in North Dakota reached 25.5 days, up from a then-record 20.8 days just two months ago. BNSF has 7,257 past-due cars, up nearly 9 percent since March.

In nearby Montana, the backlog has grown to 32.5 days from 20.5 days in early March, while the number of late cars has nudged up to 3,038 cars, from 2,910, BNSF data showed.

COSTS RISING

Wheaties and Cheerios maker General Mills is short of oats; it lost 62 days of production in the quarter ended in February -- as much as 4 percent of its output -- because of winter logistics problems, including rail congestion.

"We had a great harvest in the northern oat-growing region this year. We just couldn't get it to market because of the logistics disruptions," General Mills CEO Ken Powell told analysts in March.

North Dakota Mill, which has operated in Grand Forks for 91 years, has lost "several millions" in sales from a dozen shutdowns early this year as it lacked rail cars to haul flour to customers, said Vance Taylor, president and general manager.

The downtime so far will drag annual profit down at least 10 percent, Taylor estimated.

"Recently we were able to get through it and service our customers, but we've definitely incurred some costs to do that," Taylor said.

Commercial grain elevators have to pay late-shipment penalties of 3 to 10 cents per bushel per day to buyers such as exporters, or at least $10,000 daily per 100-car train. They often pass on those losses to farmers via lower bids for grain.

At current depressed prices, the average North Dakota farm is losing about $15,000 in income for the crop, representing about 4-5 percent of annual profit, said Mark Watne, president of the North Dakota Farmers Union.

Bob Wisness, a farmer near Watford City in the heart of the Bakken field, is trucking his grain longer distances to find a buyer because nearby elevators are full.

"I normally market 90 percent of my grain through my local elevator and now I'm forced to take the vast majority of it elsewhere, anywhere from 50 to 150 miles one way. And these trucks don't run for free," he said.

Wisness said he needs to move about half his stocks before the winter wheat harvest arrives in late July.

He is not planting corn this year. Instead, he will plant spring wheat and durum, both of which produce about 35 bushels per acre, compared to 80 bushels for corn. That means less to transport.

"I just don't want to deal with the extra bushels," Wisness said.

(Reporting By Karl Plume in Chicago, editing by David Greising and Peter Henderson)

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