uploads///CNI Grain Fertilizers

Why Did Canadian National’s Grain Revenues Derail in 1Q16?


May. 6 2016, Updated 2:05 a.m. ET

Canadian National’s Grain and Fertilizer segments

Previously, we reviewed Canadian National’s (CNI) Petrochemicals business and its prospects going forward. Here, we will discuss CNI’s Grain and Fertilizer revenues. Its Freight Shipment revenues rank third in terms of contribution to overall revenues.

In 1Q16, the Grain and Fertilizer revenues were down 2%, at $522.0 million Canadian against $535.0 million Canadian in 1Q15.

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1Q16 Grain and Fertilizer volumes

Canadian National’s (CNI) grain and fertilizers carloads fell by 5% in 1Q16 compared with 1Q15. The decline was primarily due to reduced volumes of Canadian wheat and oats to North American markets. In addition, reduced exports of US corn, soybean, and soybean meal exports through the Gulf of Mexico were responsible for the lower volumes and revenues.

However, these negative factors were partially compensated by the favorable conversion impact of a weaker Canadian dollar. Plus, higher offshore exports of Canadian canola and soybeans and better pricing compensated the fall in volumes and revenues of Grain and Fertilizer in 1Q16.

The company’s Canadian grain revenues were almost flat in 1Q16 compared with the first quarter of last year. This was a mix of higher carloads offset by lower regulated pricing. CNI’s US grain revenues were affected by strength in the US dollar, which lowered the US grain volumes by 13% in 1Q16.

Management outlook

Canadian National (CNI) expects low shipments of Canadian grain until the next harvest in September 2016. The company anticipates a tough comparison for the second and third quarters of 2016 compared with 2015. CNI believes that both US and the Canadian 2016 and 2017 grain crops will be in line with their respective five-year averages.

The company foresees a negative impact of revenue cap pricing due to lower fuel prices. However, CNI believes that opportunities can come from potash, although the competitive environment may restrict them. The company expects flat US grain exports due to a strong US dollar and an abundant supply in markets abroad.

Peer group agriculture business revenues

In the wake of a strong dollar and competition from global players, agricultural revenue growth has been a concern area for CNI’s peers also. However, CNI surprised its peers by posting a growth of 4% in the Canadian Grain and Fertilizers business in 2015.

We’ll go through the growth in agricultural revenues for its peers in the same year compared with 2014.

  • Union Pacific (UNP): declined by 5%.
  • Norfolk Southern (NSC): rose by 1.2%
  • CSX Corp. (CSX): fell by 5%
  • Kansas City Southern (KSU): declined by 4%
  • Canadian National Railway (CNI): rose by 4%
  • Canadian Pacific Railway (CP): rose by 6.7%

Investors who want to invest in the transportation and logistics sector can consider the iShares US Industrials ETF (IYJ). This ETF holds 5% in major US railroads.

In the next part, we will consider CNI’s Forest Products revenues and the management’s outlook.


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