Plains Feedlots Facing Effect
Of Shipping Tangles On Grain

By David Bowser

AMARILLO — With the local feed grain harvest in full swing, area cattle feeders don't appear worried about a shortage of corn or grain sorghum due to transportation problems, but if the railroads can't get their problems straightened out, feedyards in the Texas Panhandle and Western Oklahoma could be facing problems with the new year.

"It is not time to push the panic button yet," says Jim Gill, marketing director for the Texas Cattle Feeders Association, "but future discussions with railroads may be needed to insure continued service to this area."

A shortage of rail cars and railroad engines is being blamed for delays of up to 15 days in Nebraska. Arkansas poultry producers are shipping grain by truck, adding as much as 25 cents per bushel to their cost. In the Texas Panhandle, truck freight rates have increased from $1.65 to almost $2 per loaded mile since midsummer.

Railroads’ primary business is shipping grain to export ports, but the interior market is still a major concern for them.

Some grain merchants admit that it's a complex situation, but many are blaming the merger of railroads for the problems being faced from Texas to the Dakotas.

From the Texas Panhandle through Western Kansas, much of the problem stems from a larger than expected wheat harvest last summer. Although market conditions play a part, that wheat is usually shipped out of the region by fall to make room for corn and grain sorghum. This year, much of the wheat is still in the country elevators and there is no place to put the feedgrain as the farmers bring it in. Some elevators have elected to dump it on the ground. Others are selling as it arrives and sending it on by truck.

Some elevators north of the Canadian River in the Texas Panhandle traditionally dump grain on the ground rather than add storage, but they usually have the sales to move it quickly.

"A lot of that grain is what we're feeding the cattle down here now," says Dean Rey, a grain trader in Canyon, Texas. "It's moving from north to south."

South of the Canadian River, there is enough storage to prevent such problems.

While some of the problems are seasonal, a shortage of rail cars and engines has complicated matters and made them worse.

The flash-point for the transportation controversy is the Union Pacific and Southern Pacific merger, which formed the nation's largest railroad.

The UPSP, still trying to merge its two systems, is faced with complaints from shippers and federal regulators about clogged rail lines. Union Pacific Corp. chairman Dick Davidson has told regulators that the situation should be under control by the first of the year.

Area feedyards are currently using corn fresh from nearby harvests, but they are dependent upon grain shipped in by rail during the winter and spring. The cattle feeding operations in the Texas Panhandle and Western Oklahoma are highly dependent on the rail multi-unit movement of corn. Most of the corn is shipped in 54 or 108 car units.

"Right now with the local harvest, I don't think it's having that much of an impact," says Gill, "but there's certainly a concern about later on."

"The railroad keeps telling us that they're going to perform," says Rey.

But that's also what the railroads were telling exporters in Portland, Ore., when they canceled 80 unit trains earlier this month.

"It's not a problem yet for the local feedyards," Rey says. "We're doing fine."

But by March, April, May and into the summer, the area becomes dependent on those trains. Normally the feedyards in the Texas Panhandle will start needing grain shipped in beginning around January or February.

The railroads are telling the industry and government regulators that the problems should be straightened out by then.

"That's basically what they're telling us," Rey says.

The 35-year veteran grain trader is adopting a wait and see attitude.

Davidson claims that trying to merge the two rail lines in the midst of the third-largest corn harvest in history, a record soybean harvest and large wheat harvest from last summer, coupled with a surge in their chemical and plastics business, has caused logjams in their system.

The railroad is scheduled to offer a more specific plan and explanation of what is happening at a Surface Transportation Board meeting in Washington this week.

While UPSP is trying to merge its systems, Burlington Northern and Santa Fe, who have already merged, were also facing shortages in rail cars.

"It's a pretty lousy deal," says David Swinford of Dumas Co-Op Elevators and Mercantile in Dumas.

Swinford says that while they can't get any rail cars to move their grain, they were also notified last week that their freight rates were going up again.

"That's what BNSF told us," Swinford says, "and they’re the good ones."

He says that since the wheat harvest early last summer, the railroads have raised their shipping rates about 11 cents per bushel.

"Which means that we bought it based on 11 cents cheaper freight than what we're having to pay, and we have paid interest on it all this time because we do not get our money until the car's shipped. We can't get freight."

With the corn harvest finishing up and the grain sorghum harvest in full swing, the question is where to put all the grain.

"What's happened now because we've had our space tied up with wheat," Swinford says, " is that a lot of elevators either had to put wheat out on the ground or put the corn on the ground. What most of them have elected to do is not put either on the ground. They sell the corn for whatever it will bring whenever it comes in. Last year we paid the farmer 10 over Chicago December futures. This year we're paying five under. Those guys north of us are paying 15 under. That's 25 cents a bushel. They make 200 bushels to the acre, that's $50 an acre. There's a million acres of it in this area. That's 50 million bucks, and the railroad doesn't even understand the problem."

Swinford, who is also a Republican state representative from Dumas, has asked Speaker of the Texas House of Representatives Pete Laney, D-Hale Center, to have the General Investigating Committee look into the matter.

"He's going to do that," Swinford says. "What we want to investigate is what they said they were going to do for us when they had these mergers and what they've done for us."

Swinford says the railroads promised better service, cheaper rates and more efficiency with the mergers.

"What we've had is foot-dragging, no service and higher rates," Swinford complains. "There ought to be some ground in between there."

He complains that he went to a Railroad Commission hearing earlier this month in Fort Worth, but was unimpressed with the railroads' public position.

"They managed to get up and run their mouths off for 45 minutes without mentioning service or customers," Swinford says. "Instead of coming out here and moving freight for their revenue, they look at their bottom line and say, 'We're not making enough money. We need to go up on the freight.'"

If they did the work, they'd be making money, Swinford says.

Not all elevator operators are as exercised as Swinford, though they do remain frustrated.

"The railroads are at the busy time of year anyhow," says Bill Wagner, grain merchant with Attebury Grain, which operates more than 40 elevators from Lubbock north into the Texas Panhandle. "The merged railroads are experiencing some confusion in absorbing the combinations."

This year in the wheat growing areas of the Texas Panhandle, the Oklahoma Panhandle and up into Kansas, Wagner says there was more wheat grown than they thought they were going to have.

"We thought we were going to have a freeze-out," he says. "With the cool wet weather, we had secondary growth and actually had more production than some of us thought might happen, so we did have a little more wheat to handle than we thought."

He points out that wheat was a carrying charge market as the feed grains harvest began. It paid the elevators to retain it and meter it out as prices went up. That caused the elevators to still be filled with wheat, when during many years that wheat would have already been shipped and there would have been space available for feed grains. All this is at a time, he says, when covered grain hoppers are difficult to come by.

"Their fleet of cars for the most part on the BNSF is up in the northern tier of states working," Wagner says, "so areas in Kansas, Oklahoma and Texas are having difficulty getting these cars. That's much of it all over."

He says the 10 to 15-day delays reported in Nebraska probably hold true for the Texas Panhandle as well.

"It's a complex situation," Wagner says. "These delays are certainly uniform. In some areas, they are probably worse. There are a lot of dominoes in a row when this starts happening."

In some places, he notes, producers are even having difficulties finding a place to dump their grain.

"I've heard of them actually paying dump fees," Wagner says. "I've heard of situations up in Southwestern Kansas where if you're not a steady customer of that country point, you can't go there. I think everybody is trying to help as much as they can in the industry, but at certain times you have to ration and allocate. I guess that's happening. I do know that if you do have a way to move something, you prefer not to have your elevator full and overflowing and going on the ground, so consequently some places are only dumping grain that the farmer is selling. They don't have room to warehouse it."

Like everyone else in agriculture, the risks are there for the country elevators, he says. But while elevator operators are used to quality, quantity and market risks, now they're facing transportation risks.

Many elevators are going into the secondary market and paying $200 to $225 a car just for access to cars.

"Once you get that, then you've got to pay the current freight rates," Wagner says. "We've also seen these railroads come in and raise their freight rates during the marketing years."

In this part of the country, the new market year begins June 1, for newcrop wheat.

"We sit here with an elevator system like ours; we have to get bids to our farmers and we base that on the transportation," Wagner says. "We base our bids on what we can sell it for and what it's going to take for us to get it there. Three or four months into the year, they're raising the freight rates on us. It's happening with the feed grains, corn, milo and soybeans. This transportation portion of the equation is certainly becoming pretty hairy."

While not all the transportation of grain is by rail, the value of the transportation is based on what the railroads do. The railroads are of primary importance in the wheat trade because of the distances involved. Most of the wheat is hauled long distances to ports for export or to domestic flour mills in other parts of the country.

"The feed grains in the part of the country where we live, for the most part, stay in the area," Wagner says. "We feed a lot of cattle in this area, so corn and milo that's produced here stays in the area and is warehoused and gets metered out to the feedyards as needed. But you still have to go back and check values of local consumption versus what it might bring delivered to Mexico via rail or Southern California into the chicken and egg market via rail."

But when the wheat hasn't been moved, then the question becomes what to do with the feed grains as they are harvested.

"We're really soaking up trucks out here on the plains," Wagner says. "We're seeing some long distance truck moves. There are some cheap values coming up in Southern Kansas on corn, and they're running all the way to Hereford on trucks."

Many feedyards have their own trucks or long-term contracts with trucking firms, but in the long run, rail transportation could be crucial.

And the current snafus could have ramifications much farther afield.

Andy Kuhn of the Farmland Grain Division in Lincoln, Neb., is worried about the bigger economic picture for farmers.

"In the United States today, I feel like we're really close to a farm boom. We have Southeast Asia, with people with money who are willing to buy our product. We've got ‘Freedom to Farm’ (farm policy)," Kuhn said.

"We could be fencerow to fencerow with 10 billion bushels of corn that people want. And we can't get it there," he said. "That's what scares me."

Customers of the railroads are also on edge because of the pressure UP and Burlington Northern are putting on shippers to load and unload railroad cars quickly.

UP gives elevators 15 hours after the arrival of rail cars to get them loaded. Missing the deadline for a 100-car unit train costs the elevator $13,500. Burlington Northern customers get 24 hours and are charged $50 a day per car when they take longer.

But some grain shippers said that once they've been hustled to hit the tight deadlines, the loaded cars sit there because locomotives don't come along to pull them away.

"It really makes you wonder why we've got to load in 24 hours and then our employees watch the train sit there for two weeks," said Don Comer of the Aurora Co-op.

And there could be ramifications for the rail industry as well.

The Surface Transportation Board is now looking at another rail merger with CSX-Conrail-Norfolk Southern.

"I think probably what they're running into now is a little anti-merger backlash," Attebury Grain’s Wagner says. "Maybe this is a good combination. Maybe it does provide efficiencies and economies for everybody involved, but I think right now we're just kind of crazy."

"Don't ever deregulate a monopoly," Swinford advises.