A major snarl in railroad traffic is ricocheting through the supply chains of businesses across the U.S., causing delays and losses for shippers of goods ranging from coal to sugar inclsive ethanol, reports Wall Street Journal
Ethanol for delivery in April rose 6.9% last week to $2.467 a gallon, the highest settlement since Dec. 4 on the Chicago Board of Trade. Prices are up 40% from a low of $1.757 a gallon reached Jan. 27.
The bitterly cold winter and very high crude-oil shipments have caused railroad traffic to back up in the Midwest, where most U.S. ethanol is made, using corn grown in the region. The snarl is preventing the biofuel from reaching the coasts, where refiners mix it with gasoline or it is exported.
“You just can’t get it moved to where you need it to go,” said Jerrod Kitt, director of market information at Linn Group, a Chicago-based brokerage to Wall Street Journal. “You could definitely see $3 [a gallon] ethanol in the Midwest.”
At the same time, demand from buyers such as Canada and the Philippines has remained robust because Brazil, the second-largest producer behind the U.S., is exporting less ethanol while it uses more of the biofuel, analysts said.
In November, the U.S. exported nearly two million barrels of ethanol, the most since March 2012, according to the latest data from the U.S. Energy Information Administration.
Many of the problems stem from pileups at BNSF Railway Co. in a critical northern stretch of the country where it is shipping crude oil from North Dakota’s booming Bakken Shale region. The railroad, one of the biggest in North America, was already taxed by the heavy demand for oil transport.
BNSF is a unit of Warren Buffett’s Berkshire Hathaway Inc., which invented the business of carrying crude oil by rail when it launched its first long oil train, essentially a rolling pipeline, in 2009. Shipments of crude by rail from North Dakota rocketed to a peak of 800,000 barrels a day last October from fewer than 100,000 barrels a day in 2010.
An executive close to big utility companies says coal-fired power plant inventories are running much lower than the usual 30 days. “The railroads tell us they aren’t serving power plants until their inventories are in single-digit days,” he said.
BNSF isn’t the only railroad with capacity problems, but its woes have been aggravated by a big grain harvest and its surging crude business.