Canadian agency increases grain price index for 2014-15 crop year

The Canadian Transportation Agency (CTA) yesterday announced a 4.2 percent increase in the Volume-Related Composite Price Index (VRCPI) it uses to determine the maximum "revenue entitlement" for CN and Canadian Pacific to move western grain.

The CTA now has set the index at 1.3219 for the 2014-15 crop year that begins Aug. 1. The index will be applied when the agency makes its grain revenue entitlement determinations by Dec. 31, 2015, for the 2014-15 crop year.

Essentially an inflation factor, the VRCPI is a composite of the forecasted prices for rail labor, fuel, material and capital purchases. The index is one of numerous factors included in a formula the CTA uses to calculate the grain revenue entitlement.

The 4.2 percent increase stems from two developments: a 1.2 percent increase due to forecasted price changes for rail inputs for the 2014-15 crop year; and a 3 percent increase correction due to the effect of replacing last year's forecasts with actual data and incorporating the changes in the 2014-15 forecasts, CTA officials said in a press release.

The correction is largely attributable to the agency under-forecasting the change in railroads' fuel prices for the 2013-14 crop year, they said. The forecasting models rely heavily on expert, third-party forecasts for the price of crude oil and the Canada/U.S. exchange rate, and 2013 forecasts for the Canadian dollar were higher than those experienced, CTA officials said, adding that it's difficult to make accurate fuel model forecasts because of fluctuating crude-oil prices and the exchange rate.

"In several instances in the past, year-over-year fluctuations in the VRCPI have been largely due to the volatility inherent in fuel prices," they said.