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Mikkel Pates, Forum News Service, Published January 28 2014

Rail service issues 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.

David Berg, American Crystal’s president and CEO, said the word went out Monday that the company will slow sugar production in East Grand Forks, Minn., and Hillsboro and Drayton in North Dakota, by a “sizable” amount but declined to quantify it for competitive reasons.

The slowdown is an unprecedented impact of rail issues for the co-op’s 40-year history, Berg said. “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 said. He said 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 sugar cane co-op based in Clewiston, Fla.

Several hundred empty cars are sitting on tracks somewhere between United Sugars and its customers, Berg said. “This is completely out of bounds. We’re looking for 100 to 120 cars,” Berg said. “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 said. “The country was founded on rail cars.”

Flood of competitors

Berg said 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 said, 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 beets 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 said.

There have been unrelated, exacerbating problems, Berg said. 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 said. “In one case, it was two weeks, and other 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.