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Union Pacific’s Agriculture Freight Revenues Buck the Trend in 3Q

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Agriculture freight revenues

In 3Q16, Union Pacific’s (UNP) freight revenues from agriculture products rose 6% YoY (year-over-year) to $937 million, as compared to $880 million in 3Q15. Among all the major freight sources for UNP, only agriculture freight revenues posted a rise in 3Q16.

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Agricultural products’ volumes

Despite the US dollar and the substantial grain stock, UNP’s agriculture product volumes rose 11% YoY in 3Q16. Grain volumes rose 27% on solid US grain supply and lower commodity prices, which supported exports.

Wheat shipments rose, particularly in the second half of 3Q16, due to the impact of adverse weather in South America. UNP saw a 5% rise in grain products’ volumes in 3Q16 due to enhanced ethanol exports and biodiesel shipments. Carloads of food and refrigerated merchandise were unchanged in 3Q16.

Management outlook

Union Pacific hopes to see a robust US harvest and a solid demand for US grains across the globe in 2016. The company also expects good volumes of grain products going forward, fueled by high levels of ethanol exports. A steady rise in beer imports will most likely boost the volumes of food and refrigerated merchandise as well.

In the wake of the strong US dollar and competition from global players, agricultural revenue growth has been a concern area for UNP’s peers as well. The agricultural revenues for UNP’s peers in 1Q16 (compared with 1Q15) are as follows:

  • Union Pacific’s (UNP): 3% fall
  • Norfolk Southern (NSC): 3.2% rise
  • CSX Corporation (CSX): 8.4% fall
  • Kansas City Southern (KSU): 4% rise
  • Canadian National (CNI): 2% fall
  • Canadian Pacific (CP): 6.6% fall

Investors interested in the transportation and logistics sector can always opt for an ETF like the iShares US Industrials ETF (IYJ), which has 5.7% of its portfolio holdings in major US railroads.

In the next part, we’ll examine the performance of UNP’s Chemicals division.

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