A new study estimates that Minnesota corn, soybean and wheat growers lost nearly $100 million in revenue this spring, primarily because of higher shipping and storage costs as they sold off last year’s crops.
Railroads that move much of the grain are months behind in shipments, and freight costs have skyrocketed, in part because of increased demands to ship more oil by rail from North Dakota, but also because of other cargoes. Farmers and grain elevator operators are receiving lower bids for their crops because of the higher transportation costs. They are also worried that millions of bushels of last year’s crops won’t be shipped before the 2014 wheat, corn and soybeans begin to be harvested.
The Minnesota Department of Agriculture commissioned the study and released the results Thursday at a half-day symposium in Alexandria to discuss the future of agricultural freight in Minnesota.
Commissioner Dave Frederickson said the delays and lost revenue are a serious problem for farmers and those who work with them to move grain. “Farmers do not farm in the aggregate, they farm individually, so when those losses are calculated, you can take it right home to the mailbox,” he said.
The research, done by the University of Minnesota Center for Farm Financial Management, concluded that continued transportation problems during the March-May period cost Minnesota corn growers $72 million, soybean farmers nearly $19 million, and wheat growers $8.5 million.
Costs tend to be higher for growers in northern Minnesota who are dependent on rail, since those in southern counties near rivers may have the option of shipping by barges.
But Mike Steenhoek, executive director of the Soy Transportation Coalition, said that river transportation can be inefficient as well, with aging lock and dam systems and heavy water flow that can shut down barge traffic for safety reasons, as it has this year.
“U.S. agriculture can be accurately described as attaching a garden hose to a fire hydrant,” Steenhoek said. “We have all of this robust supply, but we have a transportation system that remains quite lackadaisical.”
Bob Zelenka, executive director of the Minnesota Grain and Feed Association, said there seem to be plenty of 100-unit trains pulling oil cars from North Dakota, but farmers and grain elevator operators have waited weeks or longer for grain trains to arrive.
“We’re not looking for preferential treatment,” he said. “We just don’t want to be disadvantaged.”
Availability of rail cars is one problem, Zelenka said, but the cost of freight is also several times higher per rail car than a year ago.
“We should have reasonable service expectations as a customer from the railroads,” he said, and an affordable appeal process to challenge “predatory pricing.”
The largest railroads that serve the area, BNSF Railway Co. and Canadian Pacific Railway, have pledged to do better.
They have repeatedly denied that they favor oil over grain, and say that demand for rail has shot up in several sectors as the U.S. economy has improved. Oil, consumer products, coal and grain shipments have all increased dramatically, they say, and the severe winter weather exacerbated the congestion and delays.
Doug Conway, Canadian Pacific director of sales for grain and grain products, said his firm is about 10,000 to 12,000 rail cars behind in its grain shipments and is making every effort to improve its rail network and scheduling system. Company officials recently reported that CP increased its grain loading by 27 percent since April, and Conway said it’s making a difference.
“We are going to be caught up, hopefully by the end of August,” he said.
John Miller, BNSF group vice president of agricultural products, said his company is spending $5 billion this year on new locomotives, rail cars, track, new hires and other improvements, after spending $4 billion last year.
Projects that should help move more grain from Minnesota and the Dakotas include improvements to reduce congestion in eastern Washington state, he said, and 22 miles of newly installed “double track” just west of Minot, N.D.
The solution to the Midwest grain backup is not putting more rail cars on an already congested system, Miller said, but expanding the rail system to move all cargo more efficiently.
However, regulators at the Surface Transportation Board are concerned about the more immediate future, and whether millions of bushels of 2013 crops will be shipped in time to make room for this fall’s harvest.
Board commissioners concluded last month that the backlog in grain train shipments has caused “severe, negative effects” for farmers, including “elevators running out of storage capacity, risks of stored grain spoiling and penalties incurred by grain shippers for products that are not delivered on time.”
Miller said BNSF is “acutely aware” of the strain on its network and the complaints about service. But he also offered a “cautionary warning” about too much regulation.
“We are concerned that these specific orders will encourage all system users across the whole BNSF network to seek regulatory intervention,” he said, hurting the system overall.