As the U.S. harvest season ramps up, grain producers — and other rail stakeholders, such as the Surface Transportation Board — will be watching to see if rail service can keep up with the increased need to ship grain both domestically and for export.
For now, grain producers overall are expressing some nervousness about rail service, given the service issues that arose earlier this year, particularly in the western U.S.
The railroads are “certainly trying to do things to remedy [rail service issues]. … But when you look at things like speed on the network — even though volumes are lower — when you look at unfilled car orders, when you’re looking at reliability of arrival and departure, those indicators are not what we need them to be, and it’s having an impact,” said Mike Steenhoek, executive director of the Soy Transportation Coalition.
“Certainly we want to see those things remedied sooner rather than later, but particularly sooner with the harvest season upon us. And so that is really a concern, and it has real consequences,” Steenhoek said.
Monitoring rail service means being on the lookout for delays, both in terms of waiting for empty rail cars and sending off loaded rail cars.
It can also mean keeping track of the rail labor data that the Class I railroads submit to STB to ensure that the railroads have sufficient train crews.
“When I talk to shippers, [the problem] is not so much the cost, although everything is more expensive and that’s certainly not welcome. It’s more the reliability — or lack of reliability — of service. And you’re seeing it across the whole network. … When you talk to shippers, and particularly when you talk to the railroads, they really highlight the challenges of being able to get sufficient workforce,” Steenhoek said.
Max Fisher, chief economist and treasurer for the National Grain and Feed Association, said, “I don’t think on the whole that we’re where we want to be yet as far as the grain industry being able to move product around.”
Peak season for grain starts in the fall
Harvest season typically starts toward the end of summer. Right before harvest season begins, demand for rail service is lower. But as harvest season picks up, so does the need for rail service.
The U.S. harvest season starts as early as August, with corn being harvested in the southern U.S., and then the season picks up as more regions are ready for harvesting. The peak occurs as harvests move northward in late September and continue through October and November. This is also when demand for rail service grows stronger.
Harvest peak is “in the latter end of 2022 and it will last until the first half of 2023,” Fisher said.
This year’s harvest is anticipated to vary by region, according to Fisher. A lot of drought occurred in the Central and Southern Plains, meaning that grain production is likely to be lower than normal in these areas. It’s also been very dry this year out West, Fisher said.
But the heart of the Corn Belt should see a fairly normal harvest in line with historical averages, he said.
Rail capacity varies by geography and railroad, which means that while some areas might be seeing rail service improve, producers in other areas might be still experiencing a lot of frustration with rail service, Fisher said.
The final destination of grain and grain products can also factor into rail service needs. While domestic consumption of grain and grain products remains fairly constant throughout the year, U.S. grain exports tend to be highest roughly in the fourth quarter and through the first third of the year.
Roughly 80% of U.S. soybean exports occur between September and February, Steenhoek said. Southern states such as Mississippi and Arkansas begin harvesting in September, with the Dakotas and Minnesota harvesting later in the year, he said.
A lot of export grain heads out of the Gulf Coast, and grain producers will rely heavily on barges and the inland waterways. But there is still a fair amount of grain that is railed down to the Gulf, Fisher said.
Export grain also heads out of the Pacific Northwest, and that region depends heavily on rail, according to Fisher.
If there is a more robust export market than normal because other countries’ output is lower than usual, such as Ukraine, it could translate into higher-than-normal demand for rail service to the ports.
“A lot is riding on the shoulders of the U.S. farmer given the fact that yes, we’re seeing more exports out of Ukraine but it’s not what it normally is — clearly it’s not reliable, it’s not predictable,” Steenhoek said. “And so there’s a lot of attention on how much food is going to be grown in the United States this year and to what extent our multimodal transportation system is able to accommodate it. So it’s something that’s of great consequence to not only our economy but globally as well.”
But “the bottom line is we’re still expecting a solid crop and we’re expecting a solid volume of exports. And so there’s a lot riding on the supply chain that accommodates that,” Steenhoek said.
While soybean export volumes are expected to trend lower this year compared with last year, “we’re expecting pretty robust production” despite the drought conditions in Iowa, Steenhoek said.
When rail service delays occur, it can significantly affect the output timeline for soybean producers, according to Steenhoek. For instance, one soybean meal shipper expects a 10-day round-trip journey between his production facility in the Midwest to the Pacific Northwest. That journey translates into three turns of a rail car per month. But if service delays result in a longer journey, that can reduce the number of turns that a car can make.
As a result, that company resorted to purchasing or leasing additional rail cars to get the same amount of volume exported, he said. However, that decision means increased costs for the producer, and it means putting additional rail cars into an already congested rail network.
Furthermore, uncertainties over the outcome of contract talks between the railroad unions and the railroads are another source of stress, particularly if union members decide to go on strike.
“It’s never a good time to have a mitigation of service within the rail industry. It would be a horrible time to see that on the eve of harvest, and so that’s something that we’ll continue to monitor,” Steenhoek said.
If rail service becomes challenged, some areas may be able to utilize barges or trucks, Steenhoek said. But those modes are also having hiring and retention issues, while barge shipments may be vulnerable to hurricane activity, which could have the ability to knock out capacity.
According to the latest World Agricultural Supply and Demand Estimates report released by the U.S. Department of Agriculture, U.S. wheat could experience higher production and export volumes in the 2022-23 crop year compared with 2021-22 volume estimates, but lower ending stock volumes and domestic use.
The U.S. crop year runs from Sept. 1 to Aug. 31.
U.S. corn production could be down in 2022-23, according to USDA’s August estimates. Ending stock volumes, exports and domestic use volumes could also be lower year over year. Meanwhile, U.S. soybean production and soybean ending stocks may be higher this year, while exports could be roughly flat year over year.
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