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Published February 04, 2014, 11:38 AM

Rail headaches force American Crystal Sugar to slow production

HILLSBORO, N.D. — American Crystal Sugar Co. says it is slowing down sugar production at three of its five factories immediately because of slow rail service. Some agricultural industry officials feel they’re losing out to oil traffic.

By: Mikkel Pates, Grand Forks Herald

HILLSBORO, N.D. — American Crystal Sugar Co. says it is slowing down sugar production at three of its five factories immediately because of slow rail service. Some agricultural industry officials feel they’re losing out to oil traffic.

David Berg, American Crystal’s president and CEO, says the company slowed sugar production in East Grand Forks, Minn., Hillsboro and Drayton in North Dakota, by a “sizeable” amount, but declined to quantify it for competitive reasons.

The slow-down is an unprecedented impact of rail issues for the co-op’s 40-year history, Berg says. “We’re looking at a phased-in response, depending on how fast the storage situation gets solved.”

In Hillsboro, crews were just about out of storage space on Jan. 27 “just up to the rafters on those storage silos,” Berg says. He says in the past two weeks, United Sugars Corp., American Crystal’s marketing entity with two other co-ops, has been behind in shipments to customers from this region by 150 to 200 cars at a time, well above the usual zero late deliveries. United Sugars is a joint venture between Crystal Sugar, Minn-Dak Farmers Cooperative and U.S. Sugar Corp., a sugarcane co-op based in Clewiston, Fla.

Several hundred empty cars are sitting on tracks somewhere between United Sugars and its customers, Berg says. “This is completely out of bounds. We’re looking for 100 to 120 cars,” Berg says. “What do you do? Do you put the product on the ground? No.”

About three-fourths of Crystal’s 2.5 billion pounds of sugar goes out in trains, and a quarter by truck and in consumer packages. The company has increased its truck hauling as much as possible to offset the rail problem.

The “physical supply of bulk (truck) trailers doesn’t exist,” Berg says. “The country was founded on rail cars.”

Flood of competitors

Berg says there is a glut of sugar on the market, so there is no shortage of sugar for customers. “But if we can’t get it to them, they’re going to go and buy it somewhere else,” he says, but acknowledges he doesn’t know if that has happened yet.

If production slows significantly for an extended period — say, another month — it could add time to the sugar processing campaign. A week off at a factory could mean beet processing goes longer into the spring or summer, causing millions or tens of millions of waste and loss. “It’s not an inconvenience, it’s a massively disruptive problem,” Berg says.

There have been unrelated, exacerbating problems, Berg says. Many industrial sugar users take a week or 10 days off at Christmas time. “This year, two of our biggest customers said they were going to have a longer shut-down,” Berg says. “In one case it was two weeks, and another case three weeks. They ordered the cars and neglected to tell us they were extending the shut-down.”

This isn’t the first rail issue of the season. Starting early in the current processing campaign, the company had problems with coal cars, a problem that BNSF has worked to address.

Earlier coal problem

All five American Crystal plants are fired with Wyoming coal, Berg says. The company built a loop track at Ardoch, N.D., about seven years ago and purchased a 114-car train set for the purpose. BNSF pulls the train into Ardoch, American Crystal off-loads the train into trucks and hauls it to individual factories. They start stockpiling it in the summer so they can last through the processing season. In October and November, the depletion rate was faster than the company could stand.

American Crystal needed the coal train to “turn” every six days, to keep up with the processing needs through the season. The “turns” started going to nine, 10 and 11 days. That meant the inventory was depleting faster than the deliveries.

At Christmastime, BNSF added a second train set to the mix — this one owned by BNSF — putting two coal trains on the road at the same time for American Crystal. While that’s welcome, BNSF hasn’t been quick to assign a locomotive, engine crew and track time for the train.

“We’re staying even, but less than desired” with the coal cars.

Other railroad critics

Crystal isn’t alone among critics of the railroad this winter.

Steve Strege, executive vice president of the North Dakota Grain Dealers Association, says his members are dealing with serious problems. The association’s 110-car shuttle trains typically can make three trips to the West Coast in a month. Some elevators report as few as 1.6 to 2.3 turns, which is about two-thirds the speed they normally would be, he says.

Strege says competition for business is an issue for agriculture. “There’s only so many crews, so many locomotives, so much track time. You give more to somebody, you give less to somebody else. It sounds like the oil industry is growing faster than the railroad is growing to keep up with it.”

It’s expensive because elevators have commitments to exporters, and exporters have ships coming in. “They’re dependent on this constant flow, and when it slows down, they have problems with their commitments.”

Berg declines to assign blame but says it is intuitive that oil might have something to do with it. BNSF has explained to American Crystal that its problems are also weather-related, but Berg says weather is part of a normal seasonal cycle.

“Yes we’ve had a difficult winter, but not enough to completely run us out of rail equipment, in my estimation,” he says.

The state-owned North Dakota Mill and Elevator in Grand Forks, N.D., shut down to incoming grain shipments on Jan. 29.

“We’re shut down because we don’t have cars,” says Mike Jones, transportation director. “We’re not getting our private (owned) empty flour cars back so we can keep running and ship flour. Our loaded cars aren’t moving well either.”

Jones says the system has been lagging since about October but is getting worse. “We’re probably about a week behind,” Jones says. “We’ve experienced this kind of a problem before, but not to this extent. Occasionally there is an issue, but this is unprecedented.”

He couldn’t quantify how much the issue may be costing the elevator in penalties or business lost to competitors. He referred questions to Vance Taylor, the mill’s general manager who was traveling for business in Florida and wasn’t immediately available for comment.

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