Farmers’ complaints about railroad practices are nothing new. The latest round of criticisms says railroads are favoring Bakken oil over grain shipments. As a result, farmers worry they will watch their harvest spoil on the ground.
Railroad criticism is a long-standing refrain among farmers. We’ve heard it as long as we can remember: At harvest time, there’s a shortage of railcars to carry grain to distant markets or storage terminals.
This year the pinch is particularly acute in North Dakota.
The federal Surface Transportation Board held a hearing in Fargo earlier this month. The arguments were familiar but had some new twists.
Some local grain elevators have faced railcar shortages since last fall. The result is that they are full at the time when farmers want to clear out their own grain bins to prepare for this year’s coming bumper crop. But like with the Christmas story, there is no room in the inn—well, the elevator.
Lance Peterson, a director of the American Soybean Association, told the Surface Transportation Board, that “inadequate rail service through delays and increased freight costs is not just a business challenge but creates massive losses which are passed directly on to the agricultural producer, the farmer.”
Minnesota farmers’ losses between March and May of 2014 amounted to $100 million, Peterson said, citing a University of Minnesota study. Similar losses for North Dakota farmers have been documented by the North Dakota State University, he said.
The rail industry said that the delays were due in part to colder-than-usual weather and that the problem would be corrected before the 2014 harvest, Peterson said. “Actually the rail industry indicated that it should be taken care of by June,” he said. “We are now part way into the wheat harvest and there is still a lot of crop from last year that has not been moved. I have heard numerous reports of grain bin companies that are literally so busy that they cannot take on any more business for this year. Farmers are in a difficult position of having to add storage because last year’s crop is still in the bin and they want to avoid piling grain on the ground during this year’s harvest.”
Farmers and the elevators say the railroads are giving priority to traffic from the Bakken oil field in western North Dakota, which has to ship oil via the railroad because of the lack of pipelines. They also complain that U.S. shippers are receiving lower priority from the Canadian Pacific Railroad (CP) as the result of a new Canadian law that fines the carrier for failing to meet a mandated level of service for Canadian agricultural products. Farmers also contend that the CP has not made sufficient investment in improving rail service.
At the Surface Transportation Board hearing, the CP and the Burlington Northern Santa Fe Railroad (BNSF) denied farmers’ complaints. In addition to last winter’s weather creating a backlog, the railroads testified that they are shipping more grain than last year and that the problems farmers are experiencing are the result of increased traffic and congestion in terminal markets in Minneapolis and Chicago.
Simply adding railcars won’t fix the problem, said BNSF’s chief marketing officer, Stevan Bobb.
“Any decision that forces more railcars onto our already congested system [a suggestion of the North Dakota Agricultural Commissioner] will not create more capacity,” he said. “It will reduce capacity to some BNSF customers.”
The soybean association’s Peterson said railroads need to do a better job of measuring the problem. “My request to the Surface Transportation Board is to require the railroads to submit metrics showing past dues, average days late, turnaround times, etc. for agricultural shippers, the oil industry, and other customers,” he said. “This information would help to give a clear picture of railroad service issues. Based on the size and scope of the rail shipment problems being faced in the upper Midwest, this is not too much to ask.”
In the meantime, farmers are investing in equipment to put the grain in bags and tubes so they can avoid putting grain on the ground—it is too late to put up new grain bins. They hope that when railcars come, the grain they have stored will be in good condition.
Daryll E. Ray holds the Blasingame Chair of Excellence in Agricultural Policy, Institute of Agriculture, University of Tennessee, and is the Director of UT’s Agricultural Policy Analysis Center (APAC). Harwood D. Schaffer is a Research Assistant Professor at APAC.