Western Canadian farmers and grain handlers are struggling to move a record crop amid a shortage of railcars that some say is worsened by the surge in the energy industry's oil shipments by rail.
Grain elevators are full and farmers are scrambling for ways to store grain after a season of good weather helped them harvest an 81-million-tonne crop. That has led to major backups in the transportation system designed to move grains from the field to export hubs and on to dinner tables around the world.
"We are not getting the rail capacity we need to move the product," said Wade Sobkowich, executive director of the Western Grain Elevator Association, which represents the major grain handling companies, including Viterra and Cargill.
"Definitely, increased shipments of oil by rail are having an impact," said Blair Rutter, executive director of the Western Canadian Wheat Growers Association, which represents farmers. "The fact that we don't have [enough] pipelines is hurting the Canadian farmer in getting his grain to market."
Railway companies Canadian National Railway Co. and Canadian Pacific Railway Ltd., which move the crop from the elevators to the ports, insist they are handling more grain than ever, and are supplying about 5,500 railcars a week. But the grain industry says it could have filled twice as many cars during the harvest peak.
The situation underscores a growing problem for Western Canadian commodities producers: Too much product and not enough ways to reach hungry foreign markets at a time when prices are strong.
Canadian oil companies are facing lower prices amid a glut of Canadian heavy crude caused partly by a lack of export pipeline capacity. And as political and environmental debates rage over the construction of new pipelines to U.S. markets and the West Coast, oil companies are increasingly relying on the railroads.
The amount of crude shipped by railcar has almost doubled since 2011, according to Statistics Canada.
The shift has increasingly tied up locomotives, train crews and space on the tracks. And the grain industry is feeling the pinch.
The bumper crop for grains has already put a damper on prices this year, and the backlog of inventories in Western Canadian elevators is only making matters worse for farmers.
Derek Burleton, a Toronto-Dominion Bank economist, said farmers could face higher transportation costs as they compete with the oil sector for railcars.
Producers who cannot sell their wheat, canola and other crops to the grain handlers that run the elevators are forced to store it on their properties, either on the ground or in a building to keep it cool and dry. In addition to the added storage costs and the lower prices paid by the grain handlers, farmers face the risk their crops will become contaminated by moisture.
Mr. Rutter said growers have been helped by grain companies willing to take in more grain than they can handle, and that railways have provided good service in a demanding year. However, he said the rail companies underestimated the size of this year's crop, which is about 14 per cent bigger than last year's.
Canadian Pacific "has moved more grain in Canada in September and October than any other September and October on record," said company spokesman Ed Greenberg. "So this is an important line of business for us but at the same time we have a responsibility to all our customers in every line of business to ensure that we are meeting their requirements."
CN spokesman Mark Hallman said the backlog of grain at the elevators is a supply chain issue that has nothing to do with the amount of oil being shipped by rail, and more railcars is not the answer.
"Throwing more hopper cars into the supply chain is not going to work. It's like morning rush hour on the freeway. You put too many cars on the road, the road gets plugged and everything else slows to a crawl," he said.
But Mr. Sobkowich said the main export terminals of Vancouver, Prince Rupert and Thunder Bay have room to handle more railcars and grain. "So the problem is what's happening between the primary elevator and the terminal elevator, and that's rail capacity. … The point is the railways have the unilateral ability to shift service and shift railcar capacity from industry to industry. And, yeah, oil and gas is getting a lot of capacity right now."