August 26, 2014

Grain piles up as trains move North Dakota oil

The furious pace of energy exploration in North Dakota is creating a crisis for farmers whose grain shipments have been held up by the vast new movement of oil by rail, leading to millions of dollars in agricultural losses and slower production for breakfast cereal giants such as General Mills.

The furious pace of energy exploration in North Dakota is creating a crisis for farmers whose grain shipments have been held up by the vast new movement of oil by rail, leading to millions of dollars in agricultural losses and slower production for breakfast cereal giants such as General Mills.

The backlog is only going to get worse, farmers said as they prepared this week for what is expected to be a bumper crop of wheat and soybeans.

“If we can’t get this stuff out soon, a lot of it is simply going to go on the ground and rot,” said Bill Hejl, who grows soybeans, wheat and sugar beets in the town of Casselton, about 20 miles west of here.

Although the energy boom in North Dakota has led to a 2.8 percent unemployment rate, the lowest in the nation, the downside has been harder times for farmers who have long been mainstays of the state’s economy. Agriculture was North Dakota’s No. 1 industry for decades, representing a quarter of its economic base, but recent statistics show that oil and gas have become the biggest contributors to the state’s gross domestic product.

Railroads have long been the backbone of North Dakota’s transportation system and the most dependable way for farmers to move crops — to ports in Portland, Seattle and Vancouver, from which the bulk of the grain is shipped across the Pacific to Asia, and to East Coast ports such as Albany, N.Y., from which it is shipped to Europe.

But reports the railroads filed with the federal government show that for the week that ended Aug. 22, the Burlington Northern Santa Fe Railway — North Dakota’s largest railroad, owned by billionaire Warren Buffett — had a backlog of 1,336 rail cars waiting to ship grain and other products. Another railroad, Canadian Pacific, had a backlog of nearly 1,000 cars.

For farmers, the delays often mean canceled orders from food giants that cannot wait weeks or months for the grain they need to make cereal, bread and other products.

“They need to get this problem fixed,” Hejl said. “I’m losing money, and my customers are turning to other sources as a result. I don’t know how much longer we can survive like this.”

This month, federal Agriculture Department officials said they were particularly concerned that Canadian Pacific would not be able to fulfill nearly 30,000 requests from farmers and others for rail cars before October. As a result, North Dakota’s congressional delegation and lawmakers in Minnesota and South Dakota have called on the Surface Transportation Board, which oversees the nation’s railroads, to step up pressure on the companies.

“This rail backlog is a national problem,” said Sen. Heidi Heitkamp, a North Dakota Democrat. “The inability of farmers to get these grains to market is not only a problem for agriculture, but for companies that produce cereals, breads and other goods.”

A recent study conducted by North Dakota State University at Heitkamp’s request found that rail congestion could cost farmers in the state more than $160 million because a local oversupply of grain has lowered prices.

The study also found that farmers would lose $67 million in revenue from wheat, corn and soybeans from January to mid-April. Around $95 million more in losses are expected if farmers are unable to move their remaining inventory of crops.

The study was done before the current harvest, which is forecast at a record 273 million bushels of wheat, up from 235 million bushels in 2013. This year’s soybean harvest is also expected to be a record, and corn will be a near-record.

Food companies say they are feeling the effects of the delayed shipments. General Mills, the Minnesota-based maker of Cheerios, told investors in March that it had lost 62 days of production — as much as 4 percent of its output — in the quarter that ended in February because of winter logistics problems, including rail car congestion. In its earnings report this month, Cargill, another Minnesota-based food giant, reported a drop in net earnings that it attributed in part to “higher costs related to rail car shortages.”

Farmers and agriculture groups say rail operators are clearly favoring the more lucrative transport of oil. Rail shipments of crude oil in North Dakota have surged since 2008, and the state now produces about a million barrels a day. About 60 percent of that oil travels by train from the Bakken oil fields in the western part of the state to faraway oil refiners. There are few pipelines to ship it.

“Oil seems to be pushing us off the trains,” said Bob Sinner, a farmer and the brother of a Democratic congressional candidate, George Sinner, who is running against the state’s lone House member, Rep. Kevin Cramer, a Republican. George Sinner has called on the Surface Transportation Board to use its emergency powers to address the rail car shortage — the board could allow shippers to move their products with the help of a different carrier, for example. But Dennis Watson, a spokesman for the board, said it rarely invoked its emergency powers and preferred to work with rail carriers to solve problems.

BNSF and Canadian Pacific maintain that their oil shipments have not replaced shipments of crops.

“Of course, the big difference in what we are shipping these days is oil,” said Matthew K. Rose, the executive chairman of BNSF. “But we aren’t favoring one type of product over another.”

Nonetheless, BNSF is investing about $400 million in North Dakota, in part to build additional tracks, hire new staff members and add rail cars.

“We understand the frustration of our customers,” Rose said. “We’re making this investment in our infrastructure to make sure that we get things back to normal.”

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