Canadian railways aim to boost grain movement, government may act

WINNIPEG, Manitoba (Reuters) - Canada’s two big railways are ramping up to provide thousands more cars per week to transport grain to ports, government officials said on Monday, aiming to work through a backlog of orders after last year’s record harvest.

Canada's Agriculture Minister Gerry Ritz speaks during Question Period in the House of Commons on Parliament Hill in Ottawa November 29, 2012 file photo. REUTERS/Chris Wattie

But Canadian Agriculture Minister Gerry Ritz warned that he is considering all options, including new rail regulations, to smooth the flow of grain.

Record Canadian crops of wheat and canola, along with frigid weather, have overwhelmed Canadian National Railway Co and Canadian Pacific Railway Ltd, resulting in a backlog of orders for tens of thousands of grain cars.

Saskatchewan Economy Minister Bill Boyd said in a statement that both railways assured the government of Saskatchewan last week that they are working to deploy thousands more grain cars per week, and would sustain that pace until at least December 2014.

Saskatchewan produces more wheat and canola than any other Canadian province. Grain companies also told the provincial government that they could move to 24-hour handling service, Boyd said.

CP spokesman Ed Greenberg confirmed that Boyd’s comments are accurate.

Ritz, who met Monday with the railways and grain companies, said grain companies told him they can best run with service of 13,000 rail cars per week, nearly three times what railways currently provide.

But Ritz left the meeting unimpressed and told reporters he is considering all options, including new regulations, to speed the flow of grain from western farm regions to ports. In some areas, rail cars are sitting on track awaiting locomotives and crews, he told reporters.

“That seems to be the problem in capacity, not necessarily cars, but the ability to move them from where they should be spotted to the port.”

Ritz said railway officials “fudged” their commitment to dedicating more grain cars when he spoke with them, by saying it depended on factors like where the grain was headed.

The railways are also only delivering grain to the British Columbia ports of Vancouver and Prince Rupert for the short term, Ritz said, and not to Thunder Bay, Ontario or the United States.

“Unfortunately, the railways have decided arbitrarily that no cars will be going into the U.S. (for grain),” Ritz said. “That’s really not their role. There are some consequences to be faced when they make arbitrary decisions like that.”

A spokesman for Canadian National could not be reached.

Ritz said he is also considering ways to make sure grain companies honor contracts with farmers, possibly making the companies pay interest for storage of grain they do not accept within a reasonable amount of time, as per their contracts.

Dean O’Harris, commodities manager at Winnipeg-based grain handler Parrish & Heimbecker Inc, doesn’t see a quick solution to the backlog.

“We’re doing our best to get this thing moved here, but we just can’t,” O’Harris said in a presentation at the Wild Oats Grainworld conference in Winnipeg. “... How long will logistical problems continue? I don’t see an end to it.”

Agrium Inc said last week the railway backlog has caused the Canadian fertilizer company to lose production, but that movement has slightly improved this month.

Boyd said the Saskatchewan government will closely monitor the difference between the cash prices grain companies pay farmers and the futures price, as transportation improves.

Earlier on Monday, Ritz said he wants to see rail companies develop more surge capacity to handle big crops, including more access to locomotives and cars.

Ritz said he is not in favor of scrapping the grain revenue cap that Ottawa imposes on railways, but said the cap system needs changes.

Canadian farmers, meanwhile, will plant more canola and less wheat this year, a market analyst said.

Farmers will plant 23.3 million acres of all-wheat, down 10 percent from last year, Jonathon Driedger, risk management portfolio manager at FarmLink Marketing Solutions, told the Grainworld conference.

He forecast 21 million acres of canola seedings, up 5 percent.

Editing by Sophie Hares and Jonathan Oatis