Dive Brief:
- Canadian National announced an agreement Wednesday to acquire Iowa Northern Railway as the railroad experiences strong grain shipping volumes in the U.S. with the growth of the biofuels industry.
- The Class I railroad will take over the shortline's 275 track miles in Iowa, which connects to CN's U.S. rail network in Cedar Rapids. Iowa Northern Railway largely serves agricultural and industrial markets in the upper Midwest, transporting biofuels and grain.
- Financial terms of the agreement were not disclosed. The acquisition is pending regulatory approval from the Surface Transportation Board, and a decision is expected to occur in 2024.
Dive Insight:
Low Mississippi River water levels and high demand for biofuels like ethanol have pushed more agricultural shippers in the Upper Midwest to send their products to domestic processing facilities instead of exporting abroad.
The acquisition gives CN better access to northern Iowa, where a number of ethanol refineries are located. It also allows the railroad to be more competitive with Union Pacific and Canadian Pacific Kansas City, which operate near Iowa Northern Railway's tracks.
"We look forward to the opportunities our combined network will provide customers, farmers, and our partners to respond to the needs of their existing and new markets," CN President and CEO Tracy Robinson said in a statement.
CN has benefited from robust grain harvest in the U.S., with the railroad seeing "strong volumes right now because of the Mississippi being so low," Chief Marketing Officer Doug MacDonald said on a third-quarter earnings call in October.
Still, demand could falter as grain exports pick up. China has looked to import more grain following a poor harvest, which could incentivize U.S. farmers to again send their goods abroad.
"We're really sold out in the U.S. market," MacDonald said, cautioning that future volumes will be tempered "by overall demand with China and other countries.”
