Bumper Crops of Wheat, Corn and Soybeans Save the Day as Railroads See Slump in Hauling Coal, Forest Products

Feb 15, 2017

It all started in Kansas in the first week of June: the great ag avalanche of 2016.

“That is when we saw the first uptick,” said John Miller, ag group vice president for BNSF Railway, one of the Class I U.S. railroads charged with transporting the enormous quantities of corn, wheat and soybeans America’s farmers produced last year.

It was a perfect set of conditions in Kansas for the June wheat harvest: good rain in April and May, plenty of sunshine. Experienced hands knew that the usually stout Kansas wheat crop was shaping up to be a gusher. Suddenly, some shippers such as grain co-ops and flour mills began calling to reserve 50 percent more space on the freight trains.

“People had no idea it was going to be so large,” Miller said.

In the end, U.S. farmers wound up producing 2.3 billion bushels of wheat last year, the most in almost 10 years. But the source of the world’s bread, pasta and tortillas wasn’t the only staple to bulge the nation’s railcars. Corn and soybeans turned in record crops — the first time ever for a 15-billion bushel corn harvest.

Nebraska, of course, was a key part of all of it, one of the country’s largest producers of both corn and soybeans. But there has been another economic impact crucial to the Cornhusker State: that bearing on the railroads that haul the grain.

Ag volumes at Omaha-based Union Pacific were up 13 percent in 2016 from the previous year, while those at BNSF, owned by Omaha’s Berkshire Hathaway, climbed 10 percent. The two of them — the two largest railroads in the nation — employ almost 15,000 people in Nebraska between them.

And the ag volumes might have been more important than in a normal year to all those paychecks. All seven U.S. Class I railroads have been fighting a two-year volume slump. Despite the ag volume, both railroads have put thousands of line workers on furlough or alternative work status and idled locomotives.

That is because of notable volume declines in some key freight categories — coal down by more than half at Union Pacific so far this year compared with last, forest products down about the same at BNSF. Overall, freight volumes at U.P. fell 7 percent last year, 5 percent at BNSF.

But when it comes to grain, it has been all upward. All told, supplies of the three major U.S. grain crops — wheat, corn and soybeans — were at an all-time record last year, 11 percent higher than a year earlier, said Bill Lapp, an economist and commodities analyst with Omaha’s Advanced Economic Solutions.

“That created a huge burden on the grain storage and transportation system,” Lapp said.

A lot of the traffic has been destined for West Coast ports on the rail lines of Union Pacific and BNSF — rivals in the western United States. Lapp said corn export shipments since September are 65 percent higher than the previous year, due largely to a decline in Brazil’s corn crop.

As for consumers, it is hard to expect much more just now in terms of supermarket prices, said John Campbell, an investment banker at Omaha’s Ocean Park Advisors who follows commodities.

“I don’t see much change for consumers solely based on current crop or prices,” Campbell said. “Corn and soybeans only impact food consumers through the livestock feedback loop. We have already seen prices for meat drop, with beef taking the longest due to longer production cycles compared to poultry and hogs.” (Much of the corn grown in Nebraska, for instance, goes to feed livestock.)

But farmers haven’t been across-the-board beneficiaries either. This year, U.S. farmers are expected to net profits of $62.3 billion, or one-half of the record $123 billion they reaped in 2013, according to the most recent U.S. Department of Agriculture report. Many farmers are facing a fourth straight year of declines amid flagging commodities prices and burgeoning supply.

The ag avalanche hasn’t crimped shippers, though. Omaha’s Green Plains Inc., the nation’s second-largest ethanol producer, is one of the largest corn buyers — 500 million bushels a year. Chief Executive Todd Becker said in an interview last week the company has experienced zero transportation problems; it uses the services of all seven major U.S. railroads to ship ethanol in tank cars to customers.

“The railroads have been executing very well,” Becker said.

Mike Steenhoek, director of the Soy Transportation Coalition, said severe weather in the Pacific Northwest and the northern stretch between Minneapolis and that region has caused some recent delays for shipments bound for Asian export.

“But we have been very happy overall,” Steenhoek said.

More than half of the U.S. soybean crop is exported. One big buyer is China, where the beans are crushed and used to feed livestock that are destined for market and butcher shops and dinner tables.

“More people have moved from a state of poverty in recent years than any time in history,” Steenhoek said. “They want to incorporate more protein into their diets, and here in the United States we can take care of our needs and theirs too.”

The railroads also are counting on ag.

Union Pacific Chief Executive Lance Fritz said in a conference call last month with investors and analysts that “favorable ag markets” are likely to continue to boost the company’s fortunes this year, with 2017 holding the prospect of halting two years of shipment declines. And marketing chief Beth Whited said on the call the company continued to see “strong shipments through the fourth quarter.”

Berkshire Hathaway Inc. owns the Omaha World-Herald.

For more information on this article, please contact Russell Hubbard at russell.hubbard@owh.com, 402-444-3133