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Ed Biggs Weighs In On Grain Cars
As much as I enjoy reading prose of my own authorship, there are times when something comes across the internet that takes pride of place. Below is a piece that I recently received from our friend and REF2014 sponsor, equipment expert Ed Biggs.
He as agreed to allow me share it with you.
Don’t cut those C113’s and build more C114’s!
There is nothing worse for a rail shipper than to have product to ship and no cars to ship them in. I have been an advocate of repairing older grain cars rather than scrapping them for many years. While I still advocate repairing the repairable older grain cars, I also believe the time is at hand to build additional grain hoppers to meet the needs of grain shippers.
Two types of railcars are most commonly called grain hoppers. The C113 type is the old 1970-1980 4750ish cubic foot capacity and the C114 is of 5000 and greater cubic foot capacity.
Last years dismal crop output idled many grain type covered hoppers. Sidelined first were the oldest cars and those needing repairs. At least one Western Class One Railroad reduced its older grain fleet by scrapping large numbers of cars. A number of leasing companies have selectively culled cars with high repair estimates. The big problem is that the pace of replacements has not kept up with retirements especially in 2012 where the focus of the rail car building industry has been on crude oil tank cars.
On January 1, 2012 the C113 fleet was 152,524 units and the C114 fleet was 120,321 units.
On April 25th 2013 the C113 fleet was 146,904 units and the C114 fleet was 120,905 units.
The 5,620 unit decline of the C113 fleet is in no way replaced by the 584 unit increase in the C114 fleet. The C113 fleet is down approximately 50,000 units since January 2007.
While there have not been any substantial shortages of covered hoppers reported yet, the potential shortage of cars has been masked by the lower than normal exports.
The United States Department of Agriculture (USDA) statistics point to a substantial increase in grain exports in 2013. What normally happens at the ports is that large numbers of covered hoppers wait for long periods as part of the throughput of the port facilities that are loading increasingly larger ships. There are quite a number of 1975- 1982 built 100 ton grain hoppers that are in that 31 to 38 year time of their life where they need a capital infusion to be useable to the end of their Interchange life of 50. Rather than scrap them either repair or flip them out into the industry to potential users that are willing to take the risk and make the repairs to the cars. You as an owner will yield in all likelihood a number substantially above scrap and shippers will have cars to use until the builders catch up. What about the high velocity on the railroads? Yes! The railroads can fly the cars across their systems to and from the ports. The problem is the substantial wait time at the ports where trains are held to load the ships. To get the best fleet utilization, domestic grain should move in modern 286K cars. It makes little sense to tie up those modern assets at ports when there is an alternative available on the cutting block.
According to the people in the know at the World Agricultural Outlook Board, the Economic Research Service, the Farm Service Agency, and the Foreign Agricultural Service who are tracking what is going on in the grain belt 2013 is shaping up to be a record year for some of the major crops. All of the following statistical information is drawn directly from the USDA 2013 Agricultural Outlook Forum Report date February 22, 2013. This report is very detailed and of interest were two items: 1) The size of the main four crops that load in grain type covered hoppers. 2) The estimated potential for exports which in my opinion the older C113 type covered hoppers can be best deployed.
Corn plantings for 2013 are projected at 96.5 million acres, down 0.7 million acres from last year’s 75-year high. Strong new-crop prices in both the futures and cash forward markets support a highly favorable net returns outlook, much as it did last year at this time. Corn production in 2013 is projected at a record 14,530 million bushels, up 3,750 million or 35 percent from the drought-reduced 2012 crop. The 2013/14 corn supply is projected to rise 28 percent to a record 15,187 million bushels as the increase in production far outweighs the year-to-year decline in beginning stocks with the smallest carry in 17 years. Prospects for a record crop are supported by higher harvested area and a return to trend yields. Harvested area is projected at 88.8million acres, up 1.4 million from 2012 and the highest since 1933. A return to more normal spring weather is expected to reduce this year’s planting opportunities for corn and leave more land available for soybeans.
A record corn crop for 2013/14 should improve ethanol production margins and lead to increased ethanol production. Corn use for ethanol is projected at 4.675 billion bushels for 2013/14, up 175 million bushels from last year, but below 2011/12 levels.
Corn Exports: U.S. corn exports for 2013/14 are projected up 600 million bushels to 1,500 million. Expanded world corn area and production in 2013/14 support continued growth in global corn use. Global corn import demand is expected to jump in 2013/14 due to falling prices, continued economic expansion, and growth in animal feed demand. Expected record production in the United States will boost exportable supplies sharply and improve competitiveness.
Wheat planted area for 2013 is expected up 0.3 million acres to 56.0 million. Winter wheat seeded area at 41.8 million acres is up 0.5 million from last year. Wheat production for 2013 is expected to decrease more than 7 percent to 2,100 million bushels despite increased planted area.
Wheat Exports: U.S. wheat exports for 2013/14 are expected to drop 100 million bushels from the 2012/13 forecast to 950 million with tighter supplies and intensified competition from other major exporters.
Soybean planted area is projected at 77.5 million acres, up 0.3 million from 2012 and up 3.6 million from last year’s planting intentions. New-crop soybean futures prices and current forward pricing opportunities are somewhat higher than last year at this time both in level and relative to corn. Several other factors also are expected to result in an increase in soybean plantings compared with last year’s intentions. Soybean supplies for 2013/14 are projected at 3,545 million bushels, up 11 percent from 2012/13 as larger soybean production more than offsets lower beginning stocks and projected imports. Soybean production is projected 13 percent higher at 3,405 million bushels mostly reflecting yield gains above last year’s drought-reduced level. Soybean plantings are projected slightly above last year as cotton plantings decline and opportunities for double-cropping increase in several of the wheat states.
Soybean Exports: U.S. exports are projected to rise to 1.5 billion bushels in 2013/14 on larger supplies and increasing foreign demand, boosting the U.S. share of global trade. However, U.S. exports will likely face stiffer competition from South America, where exportable supplies will be much higher than in 2012/13. Foreign demand will be driven by China, which typically accounts for more than half of world imports.
Rice Supplies: Total 2013 rice planted acreage is projected at 2.64 million acres, down 2 percent from 2012. The majority of this year’s acreage decline occurs in long-grain rice in the Delta states, where producers are expected to switch to crops that earn a higher return, such as soybeans. In contrast, medium-grain rice plantings are expected to expand in the South and California due largely to expected higher prices.
Rice Exports: All-rice exports for 2013/14 are projected at 93.0 million cwt, down 12 percent from a year earlier. The decrease is largely due to smaller exportable supplies of long-grain rice. Long-grain exports are projected at 61.0 million cwt, down 19 per cent. Medium- and short-grain rice exports are projected at 32.0 million cwt, up 3 percent from 2012/13.
Many factors go into the decision to scrap cars rather than sell them including depriving would be competitors. Even if no cars are scrapped, shortages of grain hoppers will increase as the harvest progresses. Some railcar builders have ample non tank car capacity that could deliver a portion of new grain cars at about the time their need will be felt. Building new grain hoppers sooner rather than later appears to be appropriate.
Ed can be reached at the address below:
Tony Kruglinski, Chairman REF2014
Providing Valuation and Transportation Services to the Rail Industry
2255 Sumter Lake Drive
Marietta, GA 30062
biggsappraisal.com Web Page