Transport Infrastructure Underinvestment Looming Over Export Prospects
BMI view: Although we have not yet had to highlight severe disruptions to grain transportation in North America as can be seen in South America, we caution that suboptimal investment in the past decade will make the US and Canada less reliable grain exporters than they have traditionally been. We believe the US has ramped up investment in its railway and port infrastructure, but its elevator and barge networks have lost efficiency and competitiveness in recent years. For Canada, investment in grain transportation has been below infrastructure-upkeep levels for decades, but the impending end of the monopoly of the Canadian Wheat Board (CWB) should increase competition and efficiency in the sector.
In both the US and Canada, investment in grain elevators has not kept up with increases in production capacity, and could create temporary bottlenecks in times when crop volume outweigh current capacity. In Canada, the decline in the number of licensed country elevators has been particularly significant in the past decade. In 1999-2000, there were 1,004 licensed primary and process elevators on the prairies. By 2010/11, this network had shrunk to a third of its former size, reaching less than 366 facilities. Only the 2011/12 crop year saw a noticeable recovery in the number of elevators with an additional 20 facilities added. However, this upturn could be linked to a change in the licensing requirements of the Canadian Grain Commission (CGC) rather than in the elevator network itself.
For the US, grain elevators are also easily brought over capacity when there is a surprise uptick in production. Also, bottlenecks in the railway or barge network can keep grain output at the elevator level for far longer than expected previously, forcing farmers to stock their production on the ground. Between 2006 and 2008, local industry sources indicated that bountiful harvests meant millions of bushels were stored outside overstuffed grain silos, waiting for shipment and exposed to wind, rain and rats. The ongoing corn and soybean harvests for the 2013/14 season, which is expected to reach record highs, will again test the country's elevator capacities as the USDA reported that, as of the end of October, maximum grain storage capacity was already reached in most growing states, while the harvest still has weeks to go.
|LHC: Canada Elevators & Delivery Points (units); RHC: US Grain Stocks, Production & Storage In Select States (bn bushels)|