I found the answer to this. There was no application health check url set. In this case the ELB pings the instance to see if it's healthy, i.e. it checks that it is booted rather than if rails is up and running. Setting the health check url to '/login/' fixed it for me because this gives a 404 until rails in running and a 200 afterwards.
Elastic beanstalk demands 2 correct responses before it deems an instance to be healthy. It checks the instance every 5 minutes. This means that an instance can take a while to start serving requests. i.e. it takes boot time + waiting for next poll from elb + 5 minutes before it sees any real traffic