Another record-setting quarter for grain shipments thanks to strong global demand
MONTREAL – Canada’s two main railways notched another record-setting quarter for grain shipments, benefiting from strong global demand, a bumper crop, efficient cars and more capacity due to smaller hauls of other products amid the COVID-19 pandemic.
Canadian National Railway Co. said it moved 7.76 million tonnes of grain in the third quarter and 2.81 million in September alone, both new records for the time periods that amount to seven straight months of unprecedented volume.
Canadian Pacific Railway Ltd. reported moving 7.72 million tonnes in the quarter ended Sept. 30, 11 percent more than its previous third-quarter record of 6.97 million tonnes set in 2014 as it marked the fourth consecutive quarter of record grain volumes.
Demand for grain
Canadian grain remains in high demand as shippers try to feed a growing appetite from mills and governments seeking to shore up staple reserves amid the pandemic.
Grain exports rose 26 percent year over year in August, reaching 3.62 million tonnes. Particularly hot are wheat, canola and barley – the latter two have big markets for beer-making and canola oil-processing in China and Indonesia, respectively.
“It was global demand that drove that strong pace of grain movement,” said David Przednowek, director of sales and marketing for bulk at CN.
“Due to Covid-19, countries are primarily concerned about food,” said Wade Sobkowich, head of the Western Grain Elevator Association. “If you understand Maslow’s hierarchy of needs, you need food before you need new clothes.”
Robust volume is set to continue apace as the country comes into a harvest season generally untainted by bad weather in Western Canada.
Excellent crop year
Agriculture and Agri-Food Canada expects grain production to rise four percent in 2020-21.
“We therefore expect a record Canadian crop to drive growth at both in rails in 2021 while also providing stability in an uncertain macro environment,” Royal Bank of Canada analyst Walter Spracklin said in a research note this week.
The ongoing grain windfalls have also helped offset vastly diminished auto and metals shipments amid fallout from the pandemic, and have partly been made possible because of them.
“Shipping in other sectors is down due to Covid-19… That’s starting to creep upwards again, but it’s not at the levels it was back in January of 2020. So grain tends to fill that,” Sobkowich said.
“When there’s a downturn in demand for lumber or oil and gas fertilizer or manufactured goods, they can turn back the taps on supply. In the grain sector it doesn’t work like that,” he said.
“In fact when the prices get worse for grain, farmers tend to want to grow more, not less.”
CN took some issue with the view that grain fills the gaps left by the economic downturn.
“In a typical year, we have 5,000 hopper cars parked in the summertime. We don’t park those cars because we’re moving more of other commodities, we’re parking those cars because we don’t have demand for movement,” Przednowek said.
CP said its higher-capacity hopper cars were key to the unprecedented volume and, in combination with longer trains, can carry at least 40 percent more grain than the 7,000-foot train model.
The Calgary-based company now has 3,200 new hoppers in its fleet, with 2,700 still on order. CN has about 800 – and 1,700 more en route – on top of those owned by private customers that use its network.
Last quarter the Montreal-based railway beat its previous third-quarter best of 6.9 million tonnes in 2014 by 12 percent, and its previous September high of 2.6 million tonnes from the same year by eight percent.
CP also shipped more grain last month than any previous September, moving 2.8 million tonnes to beat its September 2017 record by about eight percent.
The relatively good harvest weather means sorting and shipping of the grain will be smoother, with less time sucked up by handling separate grades of the crop.
“Crop quality is going to be dramatically improved this year. That’s going to result in a more efficient end-to-end supply chain, because it’s just a simpler mix of products moving through,” said Przednowek.
“The table is set.”