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Commodities Suffer As Oil And Gas Takes Rail Priority

Commodities Suffer As Oil And Gas Takes Rail Priority

The rapid pace of energy exploration, for both natural gas and oil, in North Dakota is creating a crisis for upper Midwest farmers. Grain shipments have been held up by a vast new movement of oil by rail, leading to millions of dollars in agricultural losses and slower production for everything from breakfast cereals to corn and soybeans.

Grain and other agricultural shipments are more perishable than oil, yet they are largely taking a back seat to it as shipments of fuel have overwhelmed an aging railroad infrastructure in a part of the country that’s still largely rural and struggling to keep up with housing and infrastructure for a massive influx of shale oil- and natural gas-drilling workers drawn to the Dakotas to take part in the boom.

Related: U.S. Oil Boom Revitalizing Rust Belt Economy

North Dakota has a 2.8 percent unemployment rate, the lowest in the nation, yet farmers who have long been the mainstays of the state’s economy are finding themselves at least third in line when it comes to rail transportation priorities. Agriculture was North Dakota’s top industry for decades, representing a quarter of its economic base, but recent statistics show that oil and gas have become the biggest contributors to the state’s gross domestic product, the New York Times reported.

Railroads carry grains and other crops from both North and South Dakota to ports in Portland, Ore., Seattle and Vancouver. From there, the bulk of the grain is shipped across the Pacific to Asia; and to East Coast ports like Albany, from which it is shipped to Europe. Reports the railroads filed with the federal government show that for the week that ended Aug. 22, the Burlington Northern Santa Fe Railway — North Dakota’s largest railroad, owned by Warren Buffett — had a backlog of 1,336 rail cars waiting to ship grain and other products. Another railroad, Canadian Pacific, had a backlog of nearly 1,000 cars.

For farmers, the delays often mean canceled orders from food giants that cannot wait weeks or months for the grain they need to make cereal, bread and an array of other products. It can also mean product that is spoiled in the field as the wait for rail cars drags on with highly perishable stock unable to be held for a long wait. A recent study by North Dakota State University concluded that the state’s farmers could lose $160 million as grain backlogs cause prices to fall. The backlogs are also hurting food producers like General Mills and Cargill.

Federal Agriculture Department officials said they were particularly concerned that Canadian Pacific would not be able to fulfill nearly 30,000 requests from farmers and others for rail cars before October. North Dakota’s congressional representatives have petitioned the federal Surface Transportation Board, the national regulator of railroads, to step in and use its emergency authority, which it rarely does.

Related: Why the Debate Over U.S. LNG Exports Has Been Won

In July, a broad coalition of railroad customers representing a range of manufacturing, agricultural, and energy industries wrote to Senators Roy Blunt (R.-Mo.), John Thune (R.-S.D.), Richard Blumenthal (D.-Conn.) and Jay Rockefeller (D.-W. Va.), all members of the subcommittee that oversees the Surface Transportation Board, in support of reforms that would increase competition among railroad companies and make the STB a more effective and efficient regulatory body.

The coalition — which includes among its members varied interests such as the Agricultural Retailers Association, the National Rural Electrical Cooperative Association and the Steel Manufacturers Association — is asking for reforms that would not only allow greater competition among rail providers but would also provide expeditious resolution of grievance proceedings since a case at the STB is currently extremely complex and involves a multimillion-dollar investment in lawyers and consultants.

Whether this coalition can make any headway in Congress has huge implications in the upcoming year for both food and energy prices.

by Jeff Yoders

(Source:  www.agmetalminer.com)

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