Elevators scale back on building rail terminals

PARKSTON, S.D. -- Dakota Plains Ag Center LLC's flagship elevator near Parkston, S.D., is one of the largest inland grain terminal customers of the BNSF Railway in South Dakota, and is in one of the few hotspot regions for shuttle elevator growth.

By September, the company hopes to break ground on a second terminal. The exact location has not been determined, but the company is looking at sites about 50 miles to the south in either Yankton or Bon Homme counties.

"That area is unique because it's where the state-owned rail line meets the BNSF Railway core line coming across South Dakota," says Matt Winsand, CEO of Dakota Plains Ag Center.

The BNSF comes northwest from Sioux City, Iowa, to Mitchell, S.D., then Aberdeen, S.D., before going north and west into North Dakota, toward the Pacific Northwest.

Dakota Plains Ag is one of only a few elevators still looking to build new shuttles, as saturation in the region has slowed the building boom.

Winsand says the company's research indicates there might be only two or three shuttle service deficit areas left in South Dakota.

Shuttle slowdown

Kim Vachal, a senior researcher with the Upper Great Plains Transportation Institute in Fargo, N.D., confirms the trend toward expansion to handle more shuttle train capacity has slowed in Minnesota, South Dakota, North Dakota and Montana.

Shuttle mania started in the late 1990s and accelerated more in 2005, as corn production advanced, through 2010.

"Fewer of these investments now are with the traditional cooperatives," Vachal says, although some are with much larger cooperative systems.

Some of the BNSF incentive programs have scaled back, and most of the recent expansions are by companies that buy grain, such as Dakota Plains Ag, rather than producer-funded projects, Vachal says.

The situation in each state in the region is different. Montana, for example, is much more export-oriented, but the shuttle loaders are more widely dispersed because the major commodity is wheat, which has lower yield per acre than corn.

North Dakota has seen more corn and soybean expansion and much of that is for export to the Pacific Northwest ports, so the state took a large part in the nationwide shuttle-building boom.

"We're far more rail-dependent than most of our peer states," Vachal says.

Mark Berwick, a part-time UGPTI research associate who lives in Moorhead, Minn., and farms in northeast Montana, says he was part of a research team that in the early 2000s predicted North Dakota could handle 16 shuttle loaders -- less than a third of the 56 in existence today.

"I'd think we'd have to be reaching a saturation point," Berwick says. "Of course, the changing of the crops to more corn has provided more volume, which has helped these facilities."

CHS is developing a terminal near Gwinner, N.D., and James Valley Cooperative of Oakes, N.D., has a planned loader near Verona, N.D. Both facilities will be on the Red River Valley & Western short line.

Bob Zelenka, executive director of the Minnesota Grain and Feed Association, says only one shuttle was built per year in Minnesota in 2013 and 2014, and he knows of no projects underway for 2015. If that holds, it would be the first time in about 20 years that no shuttle was built in that state.

Zelenka says Minnesota has 50 shuttle loaders out of 150 elevators with rail access. Besides the river, elevators in the state are heavily influenced by 21 ethanol plants that purchase 300 million bushels of corn a year.

In the past two years, the only two shuttles built in Minnesota were by competing farmer-owned cooperatives in Hope, Minn., and Randolph, Minn. Both are on the Union Pacific Railway, and were probably looking to tap markets in California and farther south, even though patrons have access to the Mississippi River market, which has been described as hit-or-miss.

South Dakota has a lot more crop processing, ethanol production and livestock feeding than its neighboring states -- and a lot less Class I rail service.

Gavilon Liberty Grain LLC opened a $35.5 million high-speed grain and dry fertilizer shuttle in late 2012 in Kimball, S.D. The 2.3-million-bushel facility, with an additional 4 million bushels in piles on the Dakota Southern Railroad, is being built on the old Mitchell-Rapid City freight line that hasn't been used much since the 1980s.

South Dakota Wheat Growers in October broke ground on a new $38.9 million terminal in Lyman County in Kennebec, S.D., and will start handling grain from the 2016 harvest.

Dakota Plains Ag is on the eastern edge of its territory, which extends west to Martin, S.D. It is in a unique region of shuttle opportunity, Winsand says. Dakota Plains Ag Center plans an investment of up to $35 million.

Unique opportunity

For more than two years, Dakota Plains Ag has been studying its shuttle site options in the area.

Any new site where the elevator would build would likely start modestly with four poured concrete main tanks and a couple of steel bins and dryers.

"We'll grow that as the business grows," Winsand says.

Shuttles will all come in through the BNSF mainline, but if Dakota Plains Ag should find a California market for a certain high-quality corn, it could have the option of bringing in a set of Union Pacific cars to load.

"There's a lot of markets out there that can use 10 or 20 cars on a consistent basis," Winsand says. "With this state-owned short line, it gives you the opportunity from other Class I railroads."

At the Parkston location, the company started with eight concrete main tanks, plus a ground pile. It added two 400,000-bushel bins in 2006, another in 2008 and in 2011, put up two 1-million-bushel bins and installed another dump facility.

Built in 2000, the terminal is half owned by Cargill Inc., of Wayzata, Minn., and Agrex Inc., of Overland Park, Kan., a wholly owned subsidiary of Mitsubishi Corp., a large grain company in Tokyo, Japan. Agrex is a partner in Kalama Export Co. LLC, of Kalama, Wash. The company has elevator locations in North Dakota, South Dakota and Nebraska.

500 trucks a day

Besides its 6 million bushels of permanent storage at the headquarters facility near Parkston, Dakota Plains Ag plans for another 2.5 million bushels of uncovered grain on the ground and another 1.5 million bushels of piles under cover -- a lot for motorists to see from South Dakota Highway 37.

The annual handle averages about 30 million bushels of corn, soybeans and wheat.

"At peak harvest time, we can dump more than 500 trucks a day," Winsand says. "It's speedy around here.

"We typically take about 12 million to 13 million bushels during harvest, which is going to make you put it on the ground," he adds. "We can't logistically move it that fast. If you came back next year, if we had a good crop, you'd see the same thing."

The site ships eight to 10 trains per month. With lower prices since January, the elevator has been loading six trains per month, a rate that will maintain itself until harvest. Each train holds up to 415,000 bushels.

The company also is considering building an additional flat storage building to hold another 5 million bushels near Parkston.

Winsand says the U.S. Food Safety Modernization Act of 2011 and consumer demand will indicate grains such as corn and soybeans will need to be under cover and on concrete, Winsand says.

"Our buyers, whether we are shipping to the Pacific Northwest or to the Texas Gulf, are all about quality," he says. "We're all about quality.

"Going forward, buyers are going to be focused on the color, the smell. Instead of putting grain on the ground that can get hit by snow, rain, wind, birds -- at some point, I think we're going to be forced to keep it under cover just for quality purposes."

Unlike elevators elsewhere in the region, Winsand says he can't complain about his shuttle service in 2014.

He didn't fall more than a week behind on train deliveries. In fact, the location has had the benefit of buying freight early, guarding against price spikes.

While that flat storage investment is likely at the existing rural Parkston terminal in the next five years, the big potential change for Dakota Plains Ag is that second proposed terminal.

Dakota Plains Ag was one of the first shuttle loaders built at the beginning of the region's historic 20-year building binge. This new terminal comes at the end.

"There may be room for a couple more," Winsand says.

The trend could very well be over, but that will depend on whether farmers continue their remarkable march toward increased productivity.

That's the key.

To view a map of the region showing the saturation of shuttle loaders after

the building binge, visit BNSF.

1/2: 

2/2: