4/24/2014 Morning Comments

Good Morning,

 

Outside Markets as of 6:00am: Dollar Index down 0.0420 at 79.8000; Euro up 0.00080 at 1.38220; S&P’s up 6.50 at 1879.50; Dow futures are up 34.00 at 16,494.00; 10-yr Treasuries are down 0.13%; The Nikkei closed down 0.97% at 14,404.99; The DAX is up 0.84% at 9,624.61; Gold is down $0.90 at $1280.20; Copper is up $3.60 at $307.00; Crude Oil is up $0.34 at $101.77; Heating Oil is up $0.0020 at $2.9778; Paris Milling Wheat is unchanged at €214.75/MT.

Global equities are mostly higher this morning after a lower Asian close when President Obama and Japan’s Prime Minister failed to reach a trade agreement.  Japan’s Prime Minister Shinzo Abe seemed more interested in re-affirming Japan and the US’s security ties in light of the building tension between China and Japan.  Speaking of escalating tension, Ukraine and Russia are splashed back on the front-page this morning as the Ukrainian government has been setting up checkpoints to keep pro-Russian protestors out of Ukrainian cities.  In the process, there are reports of 5 protestors being shot and killed by the Kiev backed forces.  Russian President Vladimir Putin said any attack on its citizens in Ukraine would be considered an attack on Russia itself.  This morning will see unemployment claims which are expected to show an increase of 11,000 to 315,000.

Lots of moisture working across the Mississippi River this morning with fieldwork being stalled in various stages.  The 7-day forecasted precip map shows heavy rains to impact S-MN/IA/MO/AR/L/IN/PH/KY/TN during the next week and should keep planting progress subdued after decent headway was made this week.  There are still relatively few who are overly concerned with delays to this point with May 5th being an unofficial line in the sand for concerns to increase.  NOAA extended maps continue to point towards below normal temps and below normal precip for the majority of the Midwest.  The temps almost seem more of a concern than the below normal precip being helpful as cool temperatures hamper even emergence.  4” soil temps below as of this morning.

 

Mostly firmer markets overnight in grains while soybeans continue to be the weak leg as has been the trend this week.  The themes in our market haven’t changed a great deal with the exception of US corn back to being the cheapest source of FOB supply in the world.  Argentine farmers have been slow sellers to date in part off inflation concerns and in part off a delayed crop.  $15.00 soybeans also seem more attractive than $5.00 corn.  At the close last night, US-Gulf corn was bid around +66K for spot, +64N for June and +63N for July putting is between $224/225/MT.  In Argentina, price per tonne was sitting around $243/MT for spot, $229/MT for June and $225/MT for July.  Ukraine remains near $245/MT.  Import needs should continue being sourced out of the US, especially with cheapening freight costs.  To wit, BNSF spot cars are now bid $500/car vs $2000 a week ago and $3500 a month ago.

While still on the subject of corn, worth noting the huge open interest increase yesterday on the bounce.  Corn open interest jumped 22,810 contracts on volume of 317,000.  Other notable changes included soybeans down 5,530, wheat up 2,340, meal up 270 and soy oil up 3,970.  Some of the starch definitely seems to be coming out of soybeans this week with Brazilian FOB premiums continuing to trade at distressed levels, CIF NOLA premiums arching lower and the rhetoric coming out of China about crusher financing.  Obtaining letters of credit is becoming a more difficult issue by the day, and just last night Reuters reported Chinese officials had detained Marubeni employees for failing to pay taxes on imported soybeans.  None of the aforementioned leaves a good taste in mouth of the global exporter when the globe’s largest natural long is experiencing the issues it is.

Old crop export sales estimates this morning show wheat at 100-450TMT, corn at 300-800TMT, soybeans at -250/+100TMT, meal at 25-175TMT and soy oil at 0-50TMT.  Keep an eye on wheat sales as with only 6-weeks left in the marketing year, wheat needs to see commitments rise a bit more to prevent a reduction in marketing year exports on next month’s WASDE report.  Traders will also be watching soybeans intently to see if this is the week we finally have a net negative sales report.

Spring wheat continues to trade at a 20-25c discount to KC winter wheat on the board through March.  Would continue monitoring this spread as even in very, very tight balance sheet years for HRW, the new crop spreads almost always see KC winter wheat lose premium relative to spring wheat and trade at par or even a substantial discount.  There may be inter-market opportunities available.

 

Bottom Line:  Grains are feeling the bounce this morning, and barring a disastrous export sales report, there is little to deter them from trading higher.  Fieldwork will come to a halt, planting progress will remain behind the averages, farmers are focused on farming and not selling grain, and there is just enough geo-political unrest to keep things supported.  Soybeans have been the bull-leg of spreads for weeks, and as funds roll length forward, they are entitled to some profit taking.  Still no South American soybeans trading into Iowa.

 

 

Good Luck Today.

Soil Temps 4-24

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

4/22/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:15am: Dollar Index down 0.0760 at 79.8760; Euro is up 0.00120 at 1.38060; S&P’s are up 1.25 at 1865.75; Dow futures are up 9.00 at 16,380.00; 10-yr is up 0.05%; The Nikkei closed down 0.85% at 14,388.77; The DAX is up 1.17% at 9,519.86; The FTSE-100 is up 0.96% at 6,689.07; The IBEX-35 is up 0.71% at 10,365.90; Gold is down $3.30 at $1290.60; Copper is down $1.90 at $301.50; Crude Oil is down $0.42 at $103.21; Heating Oil is down $0.0082 at $3.0035; Paris Milling Wheat is down €2.75 at €214.75/MT.

World equities are mostly firmer today as Q1 earnings seasons has gotten off to a solid start, although investors remain wary of this evening’s report on Chinese manufacturing as well as the possibility of more sanctions being levied against Russia.  The US has warned it will order new economic sanctions on Russia if it does not comply with the Geneva accord entered last week.  Pro-Moscow gunmen are showing no signs of surrendering government buildings they have seized, and it widely suspected the protesters are backed by the Kremlin who is trying to incite civil war in Ukraine.  Existing home sales data will be released in the US today, and it is expected to show a 1.1% decline to 4.55 million units which would be a 1 ¾ year low.  The 1% rise interest rates combined with lower consumer confidence tied to the Affordable Care act are being cited.

 

After a band of showers exits the far eastern corn belt this morning, the Midwest should see pretty wide open weather until this evening when another system tracks through the upper-Midwest and far-western corn belt.  This will produce modest precip in SD/ND/MN with heavier totals in IA/NE/KS.  This system will push East and impact MO/IL/WI on Thursday into Friday with heaviest totals in MO/WI up to 1.15”.  Additional moisture will push in this weekend with South Dakota seeing another shot Sunday into Monday with totals between 0.50-1.00” while S-IL/MO/AR see another 0.75-2.00”.  Lots of showers around, but expect planting to surge when and where it can occur.  Extended maps from NOAA show a cooling of temperatures to below normal during the 6-10 and 8-14, but precip will slip from above normal to below normal late in the period as we round out April.

Firmer markets overnight as prices bounce from yesterday’s sharp selloff and react to the mostly friendly crop progress report issued yesterday afternoon.  Yesterday’s loss leader, wheat, succumbed to selling pressure based on better than expected rainfall over the weekend, the forecast for rain this week in the southern plains, temporary optimism surrounding Ukraine/Russia and the trimming of fund length.  The technical picture of wheat is not incredibly encouraging, and if the lows from April 11th are breached, it will look increasingly likely the entire rally from the end of January through March 20th was bear-market corrective, and prices are set to trend towards those January lows.  Lots to happen between now and then, namely growing weather, but funds should be a little anxious about the developing chart picture in wheat.  A close over $7.18 basis July Chicago would be encouraging.

Yesterday’s crop progress report was about as expected to maybe a touch friendly with nation-wide corn planting progress pegged at 6% vs 3% last week and 14% on the 5-yr average.  Progress is slightly ahead of last year’s incredibly slow pace, and should be near 20-25% next Monday.  There are roughly 85 million acres of corn remaining to be planted.  Spring wheat planting progress was estimated at 10% vs 6% last week and 19% average.  North Dakota is 1% planted.  Oats planting progress was listed at 20% complete vs 41% last year and 55% on the 5-yr average.  The national winter wheat condition held steady at 34% G/E vs 35% last year.  Notable changes were witnessed in OK where G/E dropped 3pts to 11% G/E, while poor/very poor increased 7% to 61%.  Freeze damage is still being assessed.  9% of the winter wheat crop is headed vs 17% average with TX at 34% and OK at 38%.

Statistics Canada will be out Thursday with their first estimates of plantings on principle field crops.  Analysts expect the agency to show farmers intending to plant 24.4 million acres of wheat, down 7% from a year ago.  Canola seedings are seen up 6% to 21.1 million acres, the second largest on record after 2012’s 22 million.  Oats acres are seen steady at 3.2 million acres.  Incredibly wide basis levels, -$3.00 under the Minneapolis Board price in some cases, are expected to encourage less wheat plantings in 2014.  Poor rail performance is also thought to be inhibiting additional plantings.

Australia’s Bureau of Meteorology said in a recent statement El Nino was likely this year, and now put chances at 65% for the weather phenomena showing up as early as July.  El Nino is associated with above normal rainfall in the Americas as well as drought in Australia and Southeast Asia.

Yesterday’s export inspections on corn of 63.0 million bushels were tied for the largest single week since 1990.  Still plenty of chatter about Chinese soybean length being sold and looking for a home.  Several more Brazilian soybean cargoes were said to be trading into Mobile, AL with expectations of being railed to a southeast crusher.  Brazilian harvest is thought to be around 90% complete according to SAFRAS.  Delivery certificates continue to be canceled, and funds continue to load up on beans which should keep SN/SX very resilient above $2.50.

 

Bottom Line: Markets can find a little bit of a bounce today from yesterday’s drubbing, especially with the extended forecast looking a bit wet and cool for ramping up the planting pace.  South American soybeans are still heading to the US, and Chinese soybean inventories remain an issue.  Still, the US has to get to the end of August before new crop beans are harvested, so downside should remain limited as long as Chinese economic data doesn’t suggest a more severe slowdown is waiting in the wings.  Charts on corn and wheat need to turn around or risk further erosion.  Weather maps remain key.

 

NOAA 4-22

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

4/21/2014 Morning Comments

Good Morning,

 

Outside Markets as of 5:30am: Dollar Index down 0.0210 at 79.8260; Euro is up 0.0020 at 1.38190; S&P’s up 1.75 at 1859.75; Dow futures up 17.00 at 16,360.00’ 10-yr is down 0.03%; The Nikkei closed down 0.03% at 14,512.38; The FTSE is up 0.62% at 6,625.25; The IBEX-35 is up 0.24% at 10,292.40; Gold is down $6.00 at 1,287.90; Copper is down $0.10 at $303.30; Crude Oil is down $0.19 at $104.13; Heating Oil is down $0.0140 at $2.9942; Paris Milling Wheat is still closed from the weekend.

Mixed to better financial markets overnight as the world slowly comes back from the Easter holiday.  One of the biggest pieces of news over the weekend was obviously the tentative agreement reached between Ukraine and Russia which called on all parties to make sure groups are disarmed and free captured government buildings.  It also included the call for constitutional reform that would engage representatives of all regions, but didn’t have any reference to Ukraine’s bloc-free statue.  The agreement was vague at best, but was a step in the right direction.  A shooting at a checkpoint over the weekend highlighted the fact tensions are still very high, and the conflict isn’t yet over.  Barclays became the latest Wall Street bank to wind down it’s commodity trading arm with investment banks fleeing the space in droves.  Q1 earnings season continues this week with 83 companies of the S&P 500 reporting.  Next week 155 of the 500 will be releasing earnings data.  The Bloomberg Economic Surprise Index hit a 3-month high Friday of -0.003, indicating recent US economic data has been strong relative to market expectations.  The CRB-Food Index is now up 21.6% YTD.

Some decent rainfall amounts around over the weekend with two portions of TX receiving between 0.25-1.00” in total, although the N-TX plains didn’t see the same rain.  W-KS and E-NE also saw scattered totals, and N-IA saw cumulative totals of 0.50-1.00”.  the SE-US including AL/GA/SC/NC likely had fieldwork delayed as well with the heaviest totals hitting 2.5-3.0”.  The forecast has several systems around this week which will impact the central and southern corn belt as well as the eastern portions of the southern plains.  The 7-day forecasted precip map has some rather heavy totals for E-KS/E-NE/SW-IA/MO/AR/E-OK/E-TX.  See map below.  Few will ward off the rain, especially those in the southern plains.  Some decent chances in the driest areas of  HRW country.  Not much guidance from the 6-10 and 8-14 days maps from NOAA, although warmer temps look to remain going forward.

 

The biggest mover overnight would be the wheat market with double digit losses occurring within the first five minutes of the overnight session on weekend rainfall, forecasts for this week and a slight easing in the Ukraine/Russia tensions.  While 100% coverage didn’t occur, rains that did fall should help the battered wheat crop, and the forecasts are certainly promising like the ones shown below.  Traders have pumped up wheat on fear of disruptions to exports out of the Black Sea due to the conflict there, but despite the events to date, no shipments have been compromised and exporters continue to mop up nearly every high profile wheat tender.  Of growing concern also is the technical picture in the wheat market until prices can take out the March 20th highs.  As long as those highs remain in place, the rally which stalled last Wednesday looks like a corrective rally and selling opportunity.

Row crops are also under pressure this morning as soybeans opened 10c better last night to find themselves down 3-7c this morning.  Lots of questions remain about Chinese crush demand, and when/if US beans will see cancellations.  Before the forecasted rains move in later this week, planting progress is expected to see a notable jump.  Weekend weather was rather conducive to planting in many areas, while soil temperatures remain a bit cool north of I-80 for popping corn out of the ground.  Tonight’s crop progress report will be a focus for traders with average corn planting progress for this week at 14%.  The incredibly fast 2012 planting campaign, in which 25% of the crop was planted, certainly skews the numbers up a bit.  On Friday while markets were closed, the USDA announced 128,000MT of corn sold to unknown destinations for the 13/14 marketing year.  Corn exports continue to roll.

China released March import data overnight with total corn imports at 48,131MT, down 79% y/y.  Wheat imports were pegged at 538,950MT, up 86% y/y with the top destination being Australia at 325,684MT.  The US, France, Canada and Kazakhstan also sent wheat to China in March.  Soybean imports totaled 4.623MMT, up 20.4% y/y with the US still comprising 3.692MMT of that total.  Chinese imports of US soybeans YTD are up 11.67%, while Brazil at 929,709MT is up 121% from there terrible export performance in 2013.  Malaysian Palm Oil exports from April 1-20 totaled 717,842MT, down 6.0% from a month ago as palm oil prices have rallied sharply the past several weeks.

Will have a more in-depth look at the Commitments of Traders Report tomorrow.

 

Bottom Line:  Slow news overnight with the focus squarely on planting weather, rainfall in the southern plains and the global trade flows of soybeans.  Crop progress reports this evening will be a feature, but the markets don’t seem too concerned about any planting delays just yet.  At the end of the day, old crop corn demand is still better than expected, we need good yields in 14/15 to build carryout and acres are probably going to prove larger than current estimates provided farmers can get into the fields.  The soybean market is tight and will remain tight no matter how many imports we pencil in.  Still too many questions on the size of the HRW crop and too few answers.  Mixed to weaker trade with midday maps eyed.

 

 

 

 

Good Luck Today.

 

HPC 4-21

 

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

 

4/17/2014 Morning Comments

Good Morning,

Outside Markets as of 5:50am: Dollar Index down 0.1990 at 79.6280; Euro is up 0.00350 at 1.38540; S&P’s are down 3.25 at 1849.50; Dow futures are down 33.00 at 16,298.00; 10-yr is up 0.09%; The Nikkei closed unchanged at 14,417.53; The DAX is down 0.24% at 9,295.05; The FTSE is down 0.09% at 6,578.09; The IBEX-35 is down 0.58% at 10,208.50; Gold is down $5.10 at $1298.40; Copper is up $4.80 at $303.55; Crude Oil is up $0.34 at $104.10; Heating Oil is down $0.0024 at $3.0082; Paris Milling Wheat down €1.75 at €216.75, but still near 1-year highs.

World equity markets are somewhat subdued following a heavy week of data and ahead of the long 3-day weekend.  We’ll have weekly jobless claims today which will be looked upon with great interest after last week’s series fell to 300,000, which was a 7-year low.  Analysts are looking for a bump of 15,000 to 315,000.  Philadelphia Fed Manufacturing Index is expected to show a 1.0 increase to 10.0, adding to the sharp increase seen in March.  Vladimir Putin is finding out just how serious the West is with its sanctions after European companies warned Kremlin retaliation could cost them dearly.  Goldman Sachs pointed out yesterday after economic contraction of 0.5% in the first quarter, and the Ruble being at all-time record lows against the dollar, Russia has also witnessed $63 billion in capital flight in 2014.  Hedge funds are off to their worst first quarter since the ‘08 financial crisis with average fund gain of 1.23%.

Quiet across the Midwest, although the southern plains are expected to see moisture in some locales later today.  Totals varying from 0.10-0.24” are expected in S-KS/OK/N-TX today which would be welcome, although widespread it is not.  ND/N-MN will see additional moisture fall on Good Friday, while Saturday into Sunday sees 0.10-0.50” fall across NE/W-IA with additional chances for the southern plains as well.  The next heavy band of moisture doesn’t show up until Wednesday for the western corn belt in which SD/MN/ND/NE/IA are expected to see totals in the 0.25-1.50” area, with the heaviest in SW-MN/NW-IA.  Areas without the localized shots should see good chances for fieldwork next week, and farmers will be chomping at the bit, so still no overt planting delay concerns as of yet.

 

Soybeans continue their winning ways overnight, rallying as much as 14c at one point but still holding 6-8c gains as we move into the last trading day of the week.  Wheat and corn are tagging along, somewhat reluctantly, although this morning’s export sales report will be looked at closely, namely for soybeans.  Any positive sales, however, small, is bullish and more than the current balance sheet can support.  There were lots of reports around about weak South American soybean basis thanks to heavy SAM farmer selling on yesterday’s rally.  Reports of -65K trading were common (FOB PGA).  This should keep soybeans headed towards the US in a fairly regular fashion.  Yet, these still aren’t cheap enough to hit upriver crush plants in IL/IA or S-MN processors.  North Dakota soybeans with no PNW program still work cheaper into these locales.  Still, the chatter of China washing out 12 soybean cargoes, 10 from Brazil and 2 from the US-PNW, has some traders nervous.  The more cancellations China makes from Brazil, the more likely those soybeans are going to find a home in the US.  The soybean rally is about the tight US, not the Chinese at the moment, but headline-based downdrafts can and will happen.  Imports will continue, but the overall health of the Chinese buying program should be judged on their continued new crop buying which remains the highest of the last 5-years when factoring in the “unknown” category.  I’ll attempt to put more light on this subject with a weekend comment.

Corn had its own round of bullish news yesterday with weekly ethanol production rising to 939,000bbls/day, the highest since June 2012 and the fourth highest week on record.  This is up 13% y/y, and what’s more, stocks actually dropped 455,000bbls to 15.952 billion barrels, highlighting the heavy demand for ethanol as we head into the driving season.  Ethanol plants are taking advantage of strong margins, and based on the ethanol demand pull, those margins could be around well into summer.  With slowly improving rail performance for both hopper cars and tankers, this should lead to some localized basis improvement.  The corn market wasn’t able to respond in kind, however, as it does appear the best of the old crop tightness has been priced in for the time being, and the market is much more concerned with improved planting weather next week.  The old crop balance sheet has tightened considerably the last 5-months, but as noted, much of it has been priced in.  No feed demand update will be issued until June, and this analyst isn’t sure we can sustain another leg higher on weekly ethanol and export headlines.  We need good headlines to sustain the cuts the USDA gave us last week.

Wheat markets are bouncing a bit into the weekend despite prospects for rainfall several times the next week.  Russia/Ukraine tension remains a front-page issue, but the US still has yet to pick up any notable business from it.  The underlying Russian economy seems like more of a story than any disrupted exports to date.  Still, one thing worth pointing out to any spring wheat farmers looking at selling new crop is the discount of new crop Minneapolis wheat to KC wheat.  At current, September/December/March Minneapolis wheat is trading at a 18-22c discount to KC wheat thanks in large part to the southern plains weather and expectations for a small crop.  I would point out, however, that rarely does KC not give back this premium and more heading into and out of harvest, regardless of the size of the HRW crop relative to the HRS crop.  In looking at tight balance sheet years of the past, and using December futures, I constructed the chart below (which is also available on Twitter).  It shows the current KC/Minneapolis spread in black at +25.75c.  As you’ll notice, however, in 2013, 2011, 2009, 2007 and 2002, KC relinquished that premium substantially heading into May and June harvest.  2009, 2011 and 2013 saw that spread trade all the way down to 70-80c discount KC.  The “cheapest” discount KC traded to MPLS was in 2002 when we hit -15.75c in late May.  Something to stay abreast of as we head into spring wheat planting.

Export sales estimates for today include 75-400TMT wheat, 625-950TMT corn, -200/+100TMT soybeans, 120-250TMT meal and 0-10TMT soy oil.

There were 44 soybean certs canceled last night leaving 82 outstanding.

Bottom Line: Watch the export sales report for short-term direction, but be mindful of the long weekend ahead with chances of rain for the southern plains and open fieldwork for the Midwest next week.  Booking profits going into the Easter weekend wouldn’t be unreasonable.

Good Luck Today.

 

Dec MW-KC Seasonal 4-17

 

 

Tregg Cronin

Market Analyst

Tregg.Cronin@halocommodities.com

www.halocommodities.com

@5thWave_tcronin

 

 

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECEIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

Railroad problems…

As winter moves to spring and the eternal winter finally loosens its grip (someday hopefully), the hopes of the North American grain industry is that we can finally start to see a sense of normalcy regarding rail transportation. All winter long, northern railroads have been blaming extreme cold weather for the inconsistent rail movement that has raised BNSF shuttle freight values to $3,500+ per railcar and forced the CP Railway and CN Railway to fall 60,000 railcars behind on grain movement. On the surface, cold weather is most certainly a valid excuse. Saskatoon experienced their coldest February in 20 years, Minneapolis its coldest winter since 1979, etc. Nothing works well in the cold. Engines don’t start, water doesn’t flow, hands get cold. It’s self-explanatory, we all get it.

Where does the railroad go from here however? Is warmer weather the magic bullet that allows the railroads to catch up? Or will warmer weather unveil a mask to reveal the bigger problems surrounding rail transportation in the Upper Midwest? What will the “warmer weather” bring?

One thing we will certainly see with warmer weather – Construction season will once again start on the major rail lines in North Dakota and Saskatchewan. BNSF’s double track expansion from Minot to Williston forced major maintenance of way delays on their northern line last summer. With only one third of this project completed, and other construction projects ongoing, delays will undoubtedly occur once again.

On the other side of the spectrum, crude oil production in North Dakota is hovering around 950,000 barrels per day, roughly a 180k bpd increase from 2012. Over the past 3 years Bakken oil production has increased by an average of 202k bpd year over year. One thing the Bakken has failed to do is disappoint. Most estimates are for North Dakota production to cap out around 1.2 – 1.3 mbpd at some point in the upcoming 2 – 3 years. The escalation in production has been nothing short of amazing, given the constraints to working in frigid western ND, infrastructure limitations and labor shortages. The oil industry has and is still managing to produce at an outstanding pace.

With all this, it is hard to imagine how the railroads will begin to catch up back to “normal” freight movement. Any short term increases in oil production in the Bakken are basically all forced to move to market via the railroad. Tapped out pipeline and refinery capacity doesn’t offer much of a solution. A 150 kbpd increase in production in 2014 to 1.1 mbpd means an extra two crude trains per day will be required to move out of North Dakota. Adding 2 more trains to an already tapped rail system means that an extra two trains per day of some other commodity (intermodal, grain, etc.) will need to be replaced or oil production will have to slow. I’m not going to bet on the latter. Take the same conditions and spread them to the CP and CN in southern SK and what you end up with is a rail system that is, for the moment, over capacity. All the relief valves for more efficient grain movement come in the form of ongoing rail construction projects and pipeline expansions. Neither of which will be an option in the short term.

The reality of situation is that the railroad is going to prioritize moving its most profitable products. Grain traffic will have to compete from a price and efficiency standpoint with oilfield products including crude, sand, LPG, pipe, etc. Legislation regarding mandated grain car movements undermines the commitment that the rail lines have made to the energy industry. Unfortunately for the grain industry, this likely means that the transportation nightmare that has unraveled over the past 6 months will likely persist for much longer than the cold weather does.