CN Railway braces for surge in grain shipments as optimism grows for harvest

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Canada’s largest railroad is bracing for a surge in grain shipments across the country this year — a sign of hope that this year’s harvest will be better than the last one, when extreme drought devastated crops across the Prairies.

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“Every kernel that’s harvested this year is going to want to move,” Canadian National Railway Co.’s new CEO Tracy Robinson told the Bank of America’s transportation conference on May 17. “We need to be ready for that.”

After a tough year in Canadian agriculture, CN believes things are starting to look up, judging from soil moisture levels this spring that suggest a more normal grain crop is coming.

“It would be a good thing for the world, wouldn’t it?” Robinson said. “A lot has to happen right from here. But I think we’re starting out in a positive way.”

The shot of optimism comes as the world faces a food crisis driven in large part by Russia’s invasion of Ukraine. The conflict has destabilized one of the most important regions in the world for grain exports, causing major spikes in commodity prices that have contributed to a troubling burst of inflation. Prices are likely to stay high for months due to global supply issues, the United Nations’ Food and Agriculture Organization warned last week.

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And no matter how good Canada’s crop turns out to be, it won’t be enough to alleviate those issues on its own. The country’s agricultural output — even with a bumper crop — isn’t large enough to make a major impact on global supply, according to Ted Bilyea, a former executive at Maple Leaf Foods Inc. who is now a distinguished fellow at the Canadian Agri-food Policy Institute.

“I don’t think I see it moving the needle much,” Bilyea said. “We need a good crop just to keep things going where they are. … We’ve got to hope that the rest of the world has a good crop.”

Richard Grey, an agricultural economist at the University of Saskatchewan who helps his son run a family farm in Indian Head, Sask., was checking prices for canola on May 18. He could lock in a contract at about $24 a bushel, to be harvested and delivered to a shipper in November.

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“That’s double what it was last year,” Grey said, adding that higher gasoline prices are driving up demand for ethanol and biofuel, which in turn drives up prices for grain and oilseeds, such as canola. “This is all to do with the international situation.”

Statistics Canada reported May 18 that food inflation is accelerating at a pace not seen since 1981. The consumer price index found grocery bills in April shot up 9.7 per cent compared to last year, with bread up 12.2 per cent, cereal up 15 per cent, pasta up 19.6 per cent, and cooking oil up 28.6 per cent.

“High inflation is here to stay in 2022,” Bank of Nova Scotia analyst Patricia Baker wrote in a note to investors. “Supply constraints and geopolitical conflict are expected to impact the energy, agriculture, and commodity markets.”

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While Canada’s crop is expected to be better than last year, it’s not guaranteed to be good. In the middle of the spring planting season, farmers in Manitoba and southeastern Saskatchewan are facing fields so wet that they’re struggling to get seed in the ground. In southern Alberta, however, it’s too dry.

“Those that are saying we’re poised to have at least an average crop wouldn’t be out of line,” said Tom Steve, general manager with the Alberta Wheat and Barley Commissions. “To say that it’s going to be what we call a bumper crop, that’s pretty early to be saying that.”

CN’s chief executive agreed. “Now listen, I come from a farm in Saskatchewan,” she told the Bank of America conference. “And my father likes to say to me, `You’d like to get really excited about the grain crop, but so far we’ve never harvested one before we’ve seeded it.’”

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Still, CN is preparing for an “inevitable surge” in grain shipments in the latter part of the year, investing in high-capacity hopper cars that can carry 10 per cent more grain, Robinson said. The railway confirmed it has added 3,000 hopper cars since 2019, with another 1,250 expected between 2023 and 2024.

“Getting this running is not just about the railroad getting ready,” Robinson said. “We need our partners, the terminals, and we need our customer facilities to be (ready) … We’re optimistic, for all of our sake, that this happens.”

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The grain industry has been at odds with the railways this year, with grain companies complaining that CN and Canadian Pacific Railway Ltd. haven’t been able to meet demand for railcars despite a 30-per-cent drop in crop yields due to last summer’s drought. The railroads counter that they have been facing challenges since late last year, when massive floods in British Columbia washed out rail lines and then extreme cold forced trains to slow down.

“Their performance has been absolutely abysmal this past crop year,” said Steve at the Alberta Wheat and Barley Commissions. “It was just horrible. They couldn’t move the crop that we had. So they’re telling their investors and shareholders that they’re going to do better? We’ll believe it when we see it.”

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