By Rod Nickel
WINNIPEG, Manitoba, Feb 24 (Reuters) - Canada's two big railways are stepping up service to reduce a backlog of grain shipments that have delayed exports and pushed oat prices to record highs, but the Canadian government said it may still step in with new regulations.
Record crops of wheat and canola, along with frigid weather, overwhelmed Canadian National Railway Co and Canadian Pacific Railway Ltd, resulting in overdue orders for tens of thousands of grain cars.
The railways said they are preparing to add thousands more cars per week to transport grain to ports. The expanded service would last at least until December, CP spokesman Ed Greenberg said, while a CN spokesman did not confirm how long it would continue.
But Canadian Agriculture Minister Gerry Ritz, who met Monday with the railways and grain companies, left the meeting unimpressed and told reporters he is considering new regulations to speed the flow of grain from western farm regions to ports. In some areas, rail cars are sitting on track awaiting locomotives and crews, he told reporters.
"That seems to be the problem in capacity, not necessarily cars, but the ability to move them from where they should be spotted to the port," he said.
Ritz said railway officials "fudged" their commitment to dedicating more grain cars when he spoke with them, by saying it depended on factors like where the grain was headed.
Canada is the world's biggest canola exporter, and usually the No. 2 wheat exporter, but the bottlenecks have left crops land-locked.
Ritz said grain companies told him they would ideally like 13,000 rail cars per week, nearly three times what railways currently provide.
The railways are also only delivering grain to the British Columbia ports of Vancouver and Prince Rupert for the short term, Ritz said, and not to the United States.
"Unfortunately, the railways have decided arbitrarily that no cars will be going into the U.S. (for grain)," Ritz said. "That's really not their role. There are some consequences to be faced when they make arbitrary decisions like that."
A lack of rail cars to the United States would be disastrous for U.S. oat millers, who depend on top exporter Canada, said Randy Strychar, president of Ag Commodity Research.
U.S. millers have about a 20-day supply of oats, he said.
"If we can't get rail cars down to them, they're going to run out of oats," Strychar said.
Chicago Board of Trade nearby oat futures hit a record high on Monday.
CP's Greenberg said the railway will move grain cars to any destination that is most efficient for its customers.
Canadian National spokesman Mark Hallman said the railway hopes to provide 4,000-plus cars per week for grain once extremely cold temperatures abate and up to 5,500 cars per week by early April. Grain handlers estimate the railways currently provide about 5,000 cars combined per week.
If port terminals worked around the clock, like railways, cars could get back into service sooner, said Greenberg of CP. But Wade Sobkowich, executive director of Western Grain Elevator Association, said grain company staffing levels already exceed railways' ability to deliver loaded cars.
Ritz said he is also considering ways to make sure grain companies honor contracts with farmers.
Dean O'Harris, commodities manager at Winnipeg-based grain handler Parrish & Heimbecker Inc, does not see a quick solution.
"We're doing our best to get this thing moved here, but we just can't," O'Harris said in a presentation at the Wild Oats Grainworld conference in Winnipeg. "... How long will logistical problems continue? I don't see an end to it."
Earlier on Monday, Ritz said he is not in favor of scrapping the grain revenue cap that Ottawa imposes on railways, but said the cap system needs changes.
Canadian farmers, meanwhile, are expected to plant more canola and less wheat this year.
Global grain giant Louis Dreyfus Corp, a Western Canadian canola crusher and grain handler, estimated the region's canola area at 21.51 million acres in 2014/15, up 7 percent from a year ago.