Trains, grains and (sometimes) empty rails
Thu, 03/09/2017 - 11:02am admin
By Jenny Gessaman, Yellowstone Newspapers
Train travel may not be common for Montanans, but it is common, and key, for one of the state’s biggest industries: farming. The interaction between farmers, elevator managers and the market helps determine the health of the state’s farms.
The interaction begins with a farmer and his harvest. This farmer now has grain and needs money, so he is looking to sell his crop.
Distance prohibits the farmer from selling the crop directly to the buyer looking to use grains as food; the buyers are usually international. To facilitate the purchase, a series of middlemen are introduced.
Meet the elevator manager. He makes money by selling commodities such as grain to exporters. Exporters, in turn, make a profit by selling to end clients who will actually use the grain. That’s how the money changes hands.
How does the grain move with the money? It uses trains.
Grain pains and gains
Darren Crawford, Montana State University extension agent, broke the process down. He explained exporters need to move commodities to a place where they can leave the country.
“When you’re moving huge quantities of stuff, whether its grain, coal, oil or consumer goods, it’s trains you’re using,” he said.
Whether the exporter takes possession of the grain when it’s loaded or unloaded, Crawford said, that person needs the grain at a place where they can ship it out of the country.
According to Billings Gavilon Grains Area Manager Terry Bartelt, that place is not landlocked Montana.
“Most of our grain goes to the West Coast, to the PNW or the Pacific Northwest,” he said. “Most of Montana’s wheat goes there for export. We do load some trains to flour mills, too.”
The goal is to have the grain match the total volume of train cars. Compare it to a grocery-shopper who has to buy each bag before they start their shopping trip: buying the exact number of bags needed means they didn’t overspend on extra bags, but have enough of them to carry home all the groceries.
The difficult part is managers make these decisions based on predictions. Farmers want to get rid of grain when the price is high, and the elevator is competing nationwide for trains, meaning cars are often reserved, or booked, for months before they show up on the tracks. Bartelt is used to thinking ahead.
“As an elevator man, you’re typically planning a month in advance,” he said. “As far as the grain business, we’re buying wheat ahead of delivery most of the time. We’ve got sales on [the books] for harvest already.”
Bartelt and his Billings operation are not the only ones thinking ahead. The foresight of other elevators with other commodities, such as corn and soybeans, creates national competition for train booking.
“When those crops are harvested, there’s a lot of that moving to the West Coast, and it can be harder to get trains at that point,” he said.
That difficulty transfers to a simple economic principle for the railroad.
“It’s supply and demand: If the supply is really high, then the cost of freight can be higher,” Bartelt said. “If you have lots of corn and beans, in addition to a lot of wheat wanting to move, then prices go up.”
It becomes a game of predictions, and often chances improve with experience. Managers have to figure out what times of year buyers want grain and farmers want to move grain.
The further they can order trains ahead, the cheaper those trains come, and the greater profit can be made. Ordering trains last minute can be pricey, much like trying to book a flight the night before can cost much more than the same ticket booked months in advance.
While a single elevator cannot adjust well to sudden changes, a system of several can. That is the advantage local elevators owned by larger companies enjoy. Although Gavilon Grains has locations in Moore and Billings, the company actually has a national reach that makes it easier to adapt, at least according to Bartelt.
“It’s not too bad,” he said. “Gavilon and the other grain companies have a lot of elevators in the system. Maybe I can’t load one [car] here, so maybe they just take it somewhere else at another elevator.”
Empty cars are costly, too, so sudden changes in need often lead to a secondary market. Elevators will buy train cars not from BNSF, because those have already been sold, but from other elevators who have extra cars and do not want to take a loss.
Despite the global size of the world’s food market, change can happen fast and affect every level of business. For Bartelt, communication is key. He calls to Gavilon’s larger offices to put in train deliveries, and that line of information is constantly open and updated.
“We talk every day,” he said. “You’ve got to keep your finger on the pulse.”
Elevator managers also need to know their supply.
“You have to know your customer and know when the product’s moving,” he said.
In general, Bartelt feels his job as an elevator manager keeps him on his toes.
“It’s something you develop a feel for, and a lot of it depends on the grain market,” he said. “It’s a moving target.”
Crawford is impressed by the capability of elevator managers.
“They look at shipping costs versus the price of grain,” he said. “They figure out what they’re going to make, and work backwards to get the farmer’s price.”
Crawford knows that’s a lot to calculate, especially with daily changes.
“They’re very astute economists figure this out,” he said. They’re not in the business of selling grain for a loss.”