U.S. corn growers concerned about rail rates

by World Grain Staff
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WASHINGTON, D.C, U.S. — Concerned with whether or not recent acquisitions and consolidation in the rail industry may have led to unfair price increases, the National Corn Growers Association (NCGA) said on July 20 that it commissioned a study to review and analyze freight rail rates for corn. One-third of U.S. corn is shipped via rail and can consume more than 30% of the overall price a farmer receives for his or her grain, NCGA said.

"We need a financially healthy rail system in this country if we are to prosper," says NCGA First Vice-President Bart Schott, a grower from Kulm, North Dakota, U.S. "However, we don’t want our transportation options to be limited by unfair practices and the study provides a starting point for discussions regarding reasonable pricing."

Informa Economics evaluated overall rail revenue-to-variable-cost ratios for corn moved by rail in the United States. They looked at the impact of corn market geography, historical freight pricing, production and recent improvements in transportation infrastructure and technology.

A copy of the study is available at http://www.ncga.com/files/pdf/RailRateReportJune2010.pdf

The Surface Transportation Board utilizes a minimum price-to-revenue percentage of 180 as the threshold to hear possible unfair rate case claims. The volume of corn in the U.S. moved at equal to or above this threshold in 2008 was 43.6% of total rail volume. Farmers realize that just because the ratio may exceed the 180% threshold, it doesn’t necessarily mean the rate is extreme. What NCGA said it supports is legislation promoting competitive pricing.

The NCGA said the study showed that corn movement by rail has contributed to significant increases in revenues for the rail industry. In 2008, corn and corn products generated railroad revenues in excess of $4.3 billion. This was more than double what the industry made in 2000 and has represented an average annual increase of 12% from 2000 to 2008. During this period, carloads have increased an annual average of 4%. In fact, both ethanol and distillers grains transportation by rail have doubled since 2005.

Much of the revenue increases can be attributed to longer hauls. For each of the last seven years, the average miles that corn travels by rail has increased. Between the 2001 and 2007 growing seasons, average miles per carload increased from 771 miles to nearly 930 miles.

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