10 September 2007
DM&E Merger Opens New Markets for AG Products
Sioux City South Dakota USA - For farmers and ethanol
producers in South Dakota, a map of the merged Dakota, Minnesota & Eastern Railroad and the Canadian Pacific Railway offers as much
promise as a Christmas catalogue - in three directions.
Ethanol producers look east, and in the CP's line through Wisconsin, they see a second route to the main ethanol distribution center of
Chicago to complement the DM&E's existing access through Iowa. Furthermore, the CP continues east and offers uninterrupted service
to New England, New York, and Philadelphia, the most lucrative market for ethanol on the East Coast.
"The East Coast is where the greatest percentage of ethanol is used now, and in the future, it is going to be critical to have as
many ways to get out there as possible," says Ron Lamberty of the American Coalition for Ethanol.
Purveyors of dried distiller's grain, an ethanol byproduct used as a livestock feed, can look at the DM&E's tie-in
with the CP in Minnesota and the CP's route north to Canada's Prairie Provinces and see the prospect of new markets opening in that
country's burgeoning hog production industry, says Lisa Richardson, executive director of the South Dakota Corn Growers.
Canada exported 8.8 million feeder pigs and hogs to the U.S. in 2006 to be finished and slaughtered here. Also, the CP access to ports
on the Great Lakes and the East Coast might help establish a market for distiller's grain in Europe.
"We can ship that into the (European Union) without a tariff. They don't define it as corn. They are short of protein there, and
they define it as biotechnology," which is not subject to protective tariffs, Richardson says.
Going West
Farmers look west, and in the CP's line across Canada to the port of Vancouver, B.C., lies the prospect of new grain and soybean
exports to the Pacific Rim.
"You look at the map, and that railroad does have good connections for us to get to the West Coast. That helps with wheat
shipments west, and we're kind of excited about it," says Rick Vallery, executive director of South Dakota Wheat.
Almost all the U.S. wheat exported to Pacific Rim countries now is soft white wheat grown in the Northwest that is better for making
noodles and pasta than the red wheat that predominates in South Dakota.
"We definitely have to do some market development," Vallery says. But South Dakota State University researchers are working
to produce white wheat that grows well here, and two varieties of winter white wheat already in use in the state produced about 125,000
bushels this year, Vallery says.
Very little South Dakota corn is exported west now, but Richardson says, "We've got to figure what we should be doing with that
market."
Wyoming Coal
The most enticing longterm opportunity acquiring the DM&E offers the CP is the chance to build the Powder River Basin project. The
DM&E already secured regulatory approval for the endeavor, which would haul coal from Wyoming to power plants in the East and
Midwest.
Even now, though, Fred Green, CP's chief executive officer, says the complementary nature of CP and DM&E traffic makes the merger
attractive. The DM&E "is a lot like what we do," he says. "We've got a huge grain franchise in the Upper Midwest
states, Minnesota, and North Dakota, and we move a lot of industrial products" like ethanol. "As a consequence, we said, this
is what we do and do well, and we've got an opportunity to work with a franchise we're really familiar with. For us, it was a bit of an
obvious opportunity when the For Sale sign went up."
The CP acquired the DM&E for $1.5 billion, with an additional $1 billion contingent upon the PRB project being built and set
amounts of coal being hauled from Wyoming.
Shared Goals
In the decade DM&E officials tried to rebuild their line across South Dakota and Minnesota to contemporary standards and extend it
to Wyoming, Kevin Schieffer, chief executive officer of the DM&E, regularly pointed to the economic development a new
state-of-the-art Class I railroad would unleash. With the CP merger, such talk continues.
Schieffer and Lamberty both say there is interest in building a new ethanol distribution center somewhere on the CP line.
"Now, getting ethanol from the Midwest to the East Coast isn't a huge problem. That part of the journey is pretty well taken care
of," Lamberty says. What is still taking time to develop is how they handle it once it gets there. There are not as many places to
receive it."
Both Richardson and Vallery dream of a shipping container loading center being built in South Dakota, where containers brought to the
U.S. loaded with manufactured goods from China and other Asian countries would be filled with distiller's grain, wheat, and soybeans
for the return trip.
"So much product coming in from China is going back empty," Richardson says.
Shipping grain in containers might also prevent problems moving it in loose lots through Vancouver. Canada takes a proprietary interest
in agricultural products going through its ports.
"The Canadian Wheat Board and the way it functions, the whole industry there, is a different system than what we have in the U.S.
It would likely require some negotiation... to see if we could get wheat to run through that market," says Alan May, SDSU grain
marketing specialist.
As a cooperative extension agent in the Aberdeen area from 1980 to 1992, May saw the landscape change as farmers moved from producing
small grains to corn and soybeans. Elevators to handle the increased volumes of those crops sprouted at regular intervals on the
skyline. Now he wonders if the DM&E-CP merger with its new reach to the East Coast will set off another building boom
in the region in the already busy ethanol industry.
"Railroads are a big driver of development in this country," he says.
Many of the advantages of a merged railroad, including the ability to move trains seamlessly through a system, won't be available until
next year, however. The DM&E and CP will continue to operate largely independently until their merger is studied and formally
approved by the federal Surface Transportation Board, which Green estimates could take as long as eight
months.
|
