TEGMA Fall Symposium a Huge Success

TEGMA continued to build on its past success with one of its best ever Fall Symposiums which was held September 9 and 10, 2009 in Kansas City.  A record 75 members and colleagues attended the session which featured a number of well-known experts.

• Bill Helming, Bill Helming Consulting Services, "What Goes Up Eventually Comes Down:" The veteran ag economist made a strong case for the public to prepare for a serious and painful modern day depression in 2010-2014 with further major declines in home, commercial, and farm values. He expects a total average decline in home values from the peak in 2006 to the projected bottom in 2010-2012 will be 45 to 55 percent. He recommended for those still in the stock market to exit now; he expects the Dow-Jones Industrial Average to bottom at 3,500 to 4,000 within the 2010-2012 time period. What to do? Helming counseled, "Hope for the best, plan for the worst, think positively. Be optimistic, but be very realistic in these changing times."

• Bernardo Ayala, vice president, Mexico Marketing & Sales, Union Pacific Railroad, "Mexico: Challenges and Opportunities:" Ayala said agricultural products account for 35 percent of the company's revenue from the Mexico market, ranking it ahead of automotive, industrial products, chemicals, and other segments. The Mexican economy has struggled over the last year in direct relation to the recession plaguing the U.S. and other nations. Mexico's GDP fell by 10.4 to 1.4 percent in 2009; the economy is expected to post a positive gain of 1.2 to 2.7 percent in 2010. Mexico's agricultural markets are currently experiencing softness and suffered from a severe drought in the second half of 2009. In the future, Ayala looks for increased demand for food and whole grains with Mexican rail customers upgrading and expanding their facilities. Those customers are looking for exports to international markets. Mexico's rail industry faces challenges on several fronts: aging infrastructure; drug smuggling, theft and vandalism; border process; and operating practices.

• Steve Whitney, vice president, Sales-Carload, Canadian Pacific, "Rail Service Update: CP Rail is Expanding its Footprint and Streamlining its Service." As an overview of the company and its business, Whitney said: CP had pro-forma total revenues of $5.2 billion in 2008; has a global reach through ports of Vancouver, Montreal and New York; prime connections to U.S. railroads; enhanced network reach through the DM&E to several key U.S. Midwest markets; and in 2008 had 16,798 employees in more than 1100 communities and over 15,500 miles of track. The company's U.S. footprint has grown with the acquisition of the DM&E. When the DM&E grain volume is added to that of the Soo Line, U.S. grain represents 50 percent of CP's total grain volume. The CP's grain hopper fleet stands at about 24,000 cars, plus about 4,000 from the DM&E. Velocity improvements are enabling improvements in fleet quality, allowing CP to target its oldest, least productive cars for return. In addition, CP is in the midst of a five-year program to replace obsolete gates on about 2,500 hoppers and refurbish gates on about 3,500 hoppers.

• Thomas Brugman, section chief, Rail Customer and Public Assistance Program, Surface Transportation Board, "Updates on the National Grain Car Council and the Rail Customer and Public Assistance Program:" Brugman explained that the Rail Customer and Public Assistance Program (RCPAP) is free and an informal alternative to litigation. The most common issues handled by the program are: rail service problems, abandonment-loss of service, rates and fuel surcharges, denial of service, embargoes, claims, demurrage and many others. Carrier and shipper participation in the program is voluntary. The National Grain Car Council, Brugman said, meets at least annually to conduct a continuing dialog on grain car service and supply issues to the STB. The size of the Council is not less than 40 members composed of shippers, carriers private car owners and car manufacturers. The Council is currently working on a white paper which will examine changes in the rail grain shipping markets over the last decade. As a starting point, seven subjects are being examined for their impact on rail grain transportation: evolution of the grain market; role of locomotive development; role of grain car development; role of unit train development; private vs. system cars; role of technology; and capital investment by agriculture and railroad industries. Comments or suggestions can be sent through TEGMA to Tim McNulty of CSX who is the chairman of the White Paper Committee for the NGCC.

• Dave Vander Griend, president & CEO, ICM, Inc., "Ethanol Industry Outlook: More Food, Less Carbon:" Vander Griend briefly reviewed ethanol's rapid ascent with Congressional passage of the Energy Independence and Security Act of 2007 which, among other things, mandates corn ethanol production of 15 billion gallons by 2015. The ethanol industry for the last 12 months has been under serious economic pressure. At the present time, those plants with modest debt should be operating at a modest profit. Vander Griend noted the nation can easily supply both food and fuel needs from the nation's corn crop and is headed toward a corn surplus. He pointed out in converting corn to ethanol about half of the consumption is returned in the form of DDGs. Thus, for every two acres of corn converted to ethanol there is only one acre of feed grain displacement. He said the U.S. EPA should approve the E-15 Green Jobs Waiver, noting that carbon reduction is possible with today's technology. Vander Griend said ICM has proposed a market-based solution for a low carbon fuel standard where phase I would require a 2.3 percent reduction of carbon dioxide emissions from the gasoline baseline by 2015 and phase II would require a 4.9 percent reduction by 2022. In conclusion, he said domestic ethanol production does reduce imported oil needs, creates U.S. jobs, reduces tailpipe emissions and smog, and ethanol from starch has net carbon comparable to all energy crops (including cellulosic).

• Kevin Barth, president, Commerce Bank, "Economic Outlook - Will Agriculture and the Midwest Fare Better than Most?" Barth looked at the roots of the current recession which was triggered by increasing personal consumption largely financed by others through excessive leverage. The U.S. agricultural economy, though, has outperformed the general economy with strong global demand, low inventory levels, and high ethanol demand. Strong net farm income in 2008 allowed farmers to increase land holdings, purchase equipment and payoff debt. According to the survey of the Federal Reserve's 10th District Ag Credit Conditions, the farm economy remained solid in the 2nd quarter after softening from 2008. In addition, land values are holding firm and the supply of farms for sale is limited. Grain prices are lower with reduced exports and good growing conditions. There should be ample funds to satisfy a modest rise in loan demand. Barth said the near-term outlook for U.S. agriculture includes these key elements: the U.S. & world economies should stabilize in 2010, world GDP in emerging markets should fuel ag recovery, growth should resume in 2011, and a return to growth should expand demand for alternative energy. In looking at the availability of commercial credit, he said banks now face increased regulatory scrutiny and there are fewer banks. In addition, there is increased awareness of risk which is reflected in the terms for financing: increased spreads & fees, lower LTVs, shorter maturities, emphasis on reducing concentrations, banks are re-evaluating business lines, and a back to basics philosophy from banks.

• "Operational and Business Issues Facing the Grain Industry," a panel discussion.

 *Several of the meeting presentations are available online and can be found by clicking here.*