Last year, railroads had difficulty meeting shipping demands for a record U.S. corn crop and a less-than-stellar soybean harvest.
This year, railroads will face an even greater challenge. The nation's corn crop is forecast at 11.6 billion bushels, a new record, and soybeans forecast at a record 3.11 billion bushels.
“Looking at the size of this year's corn and soybean crops, I can't visualize rail service being better than last year,” says Jerry Fruin, University of Minnesota extension economist. “The issue is not whether rail service will be a problem, but how severe and widespread it is.”
In much of the Midwest, government regulatory agencies have approved temporary and emergency grain storage for both corn and soybeans, says Cress Hizer, Indiana Grain and Feed Association president.
Due to warm, dry weather earlier this fall, farmers harvested corn and soybeans at almost the same time, which exacerbated initial storage and transportation bottlenecks, he says.
Hizer predicts grain storage and transportation problems will get worse before they get better.
“It's always that last 25% of the crop that has difficulty finding a home, but we'll make a way,” he says. “New types of temporary storage facilities are now available that keep grain in good condition for longer periods of time. Farmers will just have to be patient while we try to make the whole system work.”
Meanwhile, rail service delays have cost farmers time and money, points out Marion Sneed, Bluford Grain Company, Bluford, IL.
“If I could get the rail cars, my bid to farmers would be 15¢/bu. or more than what I've been giving them,” he says. “Trucking it is slower and it costs more money.”
Sneed says without adequate rail service, his 130,000-bu. elevator has been forced at different times to turn farmers away. At larger elevators that accepted grain for longer periods, the wait to unload during harvest lasted up to four hours.
“It's been a real trying time,” says Sneed. “When you need rail cars you can't get them, so you lose business because you can't take in any more grain.”
Smaller country elevators that can't load 100-car shuttle trains are increasingly finding it more difficult to obtain service, says Bob Zelenka, executive director of Minnesota Grain and Feed Association. “The shuttle loaders get priority at the expense of smaller elevators, which may receive little or no service for months,” he says.
Steve Strege, North Dakota Grain Dealers Association, agrees. “Shuttle trains are more efficient for the railroads — not necessarily for the farmers, elevators or agribusinesses,” he says. “In our case, because we are land-locked, we pay some very, very high railroad rates.”
Due to consistently high rates and poor service, Strege says he doesn't think railroads in his state are complying with their common-carrier obligation as mandated under federal law. “Rates of more than 180% of the variable cost of providing service can be challenged as unreasonable,” he says. “Our rates are 250-300% and higher.”
However, Tom White, spokesperson for the Association of American Railroads, says the railroads are providing reasonable service at a fair price. “We are common carriers and we are complying,” says White, “but there's no obligation for us to go bankrupt.”
Rates will decrease in areas where efficiencies can be achieved, he points out.
“Shuttle trains allow us to make investments to handle grain more efficiently,” White says. “Grain has the second-lowest average rate of any commodity we move, next to coal.”
White adds that when demand is heavy, rates increase, no matter what mode of transportation is being used.
“Barge companies increased their rates by more than 50% during the peak demand last fall, which created further demand for rail,” he says. “Whenever you have a spike in demand like last year, you're going to have problems with transportation, not just on the rail side, but with trucks and barges, too.”
Strege responds that rural grain elevators aren't asking railroads to go bankrupt. “Sometimes I wonder if the railroads think about the reverse,” he says. “What good would it do us, who depend on them for transportation, to force them into bankruptcy? All we want is adequate service at reasonable rates.”
Complaints over rates and rail service are likely to continue, especially during years with large crops, according to Fruin.
He advises farmers and elevator operators to rely more on on-farm and temporary storage to handle these unusually big harvests.
“It's not fair to expect railroads to invest in costly equipment that will sit idle during long periods of time, especially in a business that is as seasonal and hard to predict as agriculture,” says Fruin. “On the other hand, if we have a third big corn crop in a row, then we need to step back and ask if railroads do need to make more investments.”
Fruin points out that some savings from increased efficiencies in shuttle trains are passed along to farmers in the form of better prices bid for grain.
“People will continue to question how much these efficiencies trickle down to benefit farmers, rural communities, small elevators and processors,” he says. “For example, county road costs may go up as a result of farmers trucking more grain further to shuttle train elevators to get better bids, but are the higher bids enough to cover all the costs?”
Fruin says railroads were probably overregulated until about 1980. Now, Congress and the Surface Transportation Board need to be more responsive to the needs of rural communities of the future.
“We need more oversight of these important public policy issues, like clearly defining the common carrier obligation,” says Fruin. “Without a clear definition, country elevators can't adequately plan for rail car utilization.”
Trucking Trend Treks Up
Half of all U.S. grain is now being transported via truck, according to Kim Vachal, associate research fellow at the Upper Great Plains Transportation Institute.
“More grain is being trucked and more is being processed locally through feeding or processing,” says Vachal. “Domestic processing is changing (the transportation industry), particularly with ethanol, where trucks lend themselves better to transporting grain smaller distances to local processing plants.”
Vachal cites the USDA's most recent grain transportation report, which shows trucks carried 50% of all U.S. grain in 2000, compared to 41% in 1995. U.S. grain shipments by barge have held steady, at 19% in 1995 and 18% in 2000.
However, grain shipments by rail have dropped from 40% in 1995 to 32% in 2000. According to the USDA's Agricultural Marketing Service (AMS), “truck replaced rail as (the) predominant grain-hauling mode around 1985.”
In 2001, U.S. rail shipments totaled 2.184 billion tons, according to AMS statistics. Yet farm products (98% field crops) represented only a small portion of U.S. rail shipments in 2001, at 160 million tons.
Tom White, a spokesperson for the Association of American Railroads, says grain is an important part of the traffic base for U.S. railroads.
“Grain ranks fourth as a revenue source,” behind inter-modal (truck trailers and containers), coal and chemicals, he adds.
However, predicting the needs of the grain industry can be difficult and costly if inaccurate.
“Railroads don't want their entire traffic-base dependent on something that's cyclical,” says White. “That's why railroads dependent primarily on grain went out of business.”
Trucks help to fill the transportation void — up to a point — when rail or barge services lag behind, says Cress Hizer, Indiana Grain and Feed Association president. “More farmers are getting bigger trucks and hauling further,” he says. “However, there is currently a shortage of qualified commercial drivers in Indiana, and this adds to the transportation challenges for the Midwest.”