Hi, Roger,
I had some trouble at this spot as well, and I took notes so that Rebekah and I could go back and do some arrow painting, which we did the next day.
The camino goes into Melgar de Arriba. There is a bar in town, and I believe that there is some kind of albergue available, but I didn't see it.
Leaving Melgar de Arriba, you want to find the dirt track through the fields to Arenillas. These are the notes I took at the time. All you need to find is the church and the cemetery:
In Melgar de Arriba, leave town, cross the bridge going out of town, the church will be in front of you, turn R and go past a few houses. Take a left and go past the cemetery, and then KSO when the road ends and turns into a nice dirt track. This path takes you straight to Arenillas. Right before the town of Arenillas, there's an unmarked fork. Go to the right, it will take you into the village. A left turn takes you up to the modern square building connected with the concrete canal, and you then will have to make a big detour to get across the canal.
Once in Arenillas, arrows take you to the canal, and you walk next to the canal all the way into Grajal de Campos.
It's a long day from Villalon to Sahagun -- once that albergue in Grajal is opened, it will be a great stop.
Buen camino, Laurie
p.s. I have looked at Peter's map, and it doesn't go through Melgar de Arriba. His route goes along the highway all the way from Santervas del Campo into Sahagun. That would add more highway walking to what you did, so I think this is a better alternative for cyclists.