DELAVAN'S CHANGING ROLE IN THE CORN MARKET
In 2012, Delavan was established on the Canadian Pacific (CP) railroad with high hopes of revitalizing the glory days of shipping corn to the southern chicken market. However, the landscape of the corn industry has shifted dramatically since the dawn of the century, presenting both challenges and opportunities for Delavan. Initially, Delavan was poised to become a key player in supplying corn to the southern United States. Post 2008, the ethanol boom significantly increased local corn demand in southern Minnesota, driving up prices. As a result, southern markets began sourcing cheaper corn locally, diminishing Delavan's competitive edge. Historically, the most lucrative destinations for corn shipments on the CP railroad have been the Pacific Northwest (PNW). However, Delavan faces stiff competition from origins in Central Minnesota and North Dakota, where corn is cheaper, and freight rates are lower. These regions are closer to the PNW, making them the preferred sources for fulfilling corn demand. In rare instances, such as the 2019 drought in Western Canada, the demand for corn extends into southern Minnesota. These events provide a temporary boost for Delavan, but they are not consistent enough to rely on for long-term success. The recent closure of Green Plains' Fairmont facility has opened a potential avenue for Delavan. Fairmont processed 40 million bushels of corn annually, equivalent to 93 trains. This presents an opportunity for Delavan to capture some of this business, but it must contend with the Union Pacific (UP) railroad, which dominates the local market. The UP has a stronghold in the local corn market, with strong demand in California, Arizona, and Idaho, as well as access to the PNW, Gulf, and Mexico. The UP has historically pulled corn from origins in Nebraska, Iowa and Southern MN which are all in a similar market environment with strong corn demand from local ethanol plants and livestock. A significant development occurred on December 14, 2021, when the CP acquired the Kansas City Southern (KCS), creating the first single-line network connecting the U.S., Canada, and Mexico. This merger has started to yield more competitive rates for shipments to Mexico, a crucial market for Delavan. Delavan is set to load its first soybean train to Mexico in May, marking a significant milestone. There is cautious optimism that corn shipments will follow, especially as the CP-KCS merger continues to streamline operations and improve competitiveness. While the local crop is currently short, the trajectory suggests that Delavan could see increased volume next year. Delavan's journey has been marked by challenges and shifting market dynamics. However, with strategic adjustments and the potential benefits of the CP-KCS merger, there is hope that Delavan will find its footing and thrive in the evolving corn market.
Kevin Schweer, Lead Grain Merchandiser
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