Canadian rail shutdown poised to disrupt North American agriculture By Reuters

By Tom Polansek and Promit Mukherjee

CHICAGO/OTTAWA (Reuters) – A looming shutdown of freight rail operations across Canada would disrupt North America’s agricultural supply chain, snarling shipments of everything from wheat to fertilizer and meat.

If last-minute labor agreements are not reached, both Canadian National Railway (TSX:) and Canadian Pacific (NYSE: ) Kansas City, an efficient duopoly, will shut down nearly all freight rail service across Canada for the first time at midnight Thursday.

Canada is the world’s largest exporter of canola, used in food and biofuels, and potash fertilizer, as well as the third largest exporter of wheat. While a lockout or strike would directly involve 10,000 Canadian rail workers, not US ones, it would have knock-on effects on the US economy because of the countries’ criss-crossing rail lines.

Nearly three dozen North American farm groups, in a joint letter to the US and Canadian governments on Monday, called for action to avoid a shutdown.

“The effect of a strike would be particularly severe on bulk exporters in both Canada and the United States, as shipping is not a viable option for many agricultural shippers,” the letter said, citing high volumes and long distances.

Rail operators said the blockades would begin on Thursday. The Teamsters union, which is demanding better wages, benefits and crew scheduling, issued a strike notice Thursday to CPKC.

The shutdown will halt shipments of U.S. spring wheat from Minnesota, North Dakota and South Dakota to the Pacific Northwest for export, said Max Fisher, chief economist at the National Grain and Feed Association.

CPKC ships grain from the Dakotas and Minnesota to West Coast export terminals via Canada, according to the US government.

U.S. farmers have nearly two-thirds of their spring wheat crop left to harvest, the U.S. Department of Agriculture said Monday. The soybean, corn and canola harvests are still weeks away in North America.

Canada’s network of Prairie elevators would run out of storage capacity within 10 days of a shutdown, said Mark Hemmes, head of Quorum Corp, which monitors Canadian grain handling and transportation.

Shippers are also concerned about U.S. corn products heading to Canada. In 2023, Canada was the top destination for US ethanol exports, and nearly three-quarters traveled by rail, according to the USDA.

“We can’t have the railroads down,” Fisher said.

The U.S. exported $28.2 billion worth of agricultural products to Canada last year, the third-largest destination for agricultural exports after China and Mexico, the USDA said.

The U.S. imported $40.1 billion worth of Canadian agricultural products last year, making Canada the second-largest source of U.S. agricultural imports after Mexico, the agency said.

About 85 percent of the 13 million metric tons of potash imports from the U.S. last year came from Canada, almost all of which crossed by rail, according to the USDA.

“NOT GOOD TIME”

U.S. corn farmers apply fertilizer in the fall and spring, but potash imports from Canada are steady year-round, said Krista Swanson, chief economist for the National Corn Growers Association.

“Given the constant trade flows and the importance of the trade relationship between the two nations, there is no time for this to happen,” Swanson said.

Rail transports an average of 69,000 tonnes of fertilizer per day, the equivalent of four to five trains, said Fertilizer Canada spokeswoman Kayla FitzPatrick. The disruptions will cost the industry $55 million ($40.34 million) to $63 million a day in lost revenue, not including logistics and operational costs, she said.

Canadian meat producers have warned that a rail shutdown would result in millions of dollars in losses and waste.

The Canadian Meat Council and the Canadian Pork Council said some processing plants expect to lose up to $3 million a week and noted that those facilities would be forced to close within seven to 10 days of a shutdown of the railway. Once the railroads resume service, it will take two to five weeks for the plants to return to normal capacity.

There is concern that the flow of Ontario soybeans to export markets, primarily Japan, will stop completely even before harvest, said Crosby Devitt, CEO of Grain Farmers of Ontario.

With delays in crop delivery lasting more than a week, companies must pay contract penalties and backlogs for ships waiting for grain to arrive, creating significant costs for the industry, said Wade Sobkowich, executive director of the Western Grain Elevator Association.

“We’ll be playing catch-up for the rest of the crop year until next July,” he said.

($1 = 1.3634 Canadian dollars)