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Grain Rail Tariff Rates Continue To Climb

Date Posted: January 31, 2013

This article is reprinted from the USDA's Jan. 31 Grain Transportation Report.

Since 2003, grain and oilseed rail rate increases have been higher than the increase in railroad costs.

Grain and oilseed producers are “price takers” rather than “price makers,” with little control over the price they receive for their products.

Producers are frequently unable to pass along cost increases to customers because of the competitive nature of the grain industry.

Consequently, increases in transportation costs result in lower producer profit even as commodity prices have had a positive effect on producer profit margins.

The lower producer profits reduce the potential benefit to rural economies.

For agricultural shippers located far from markets with no cost-effective alternative, rail is the only transportation available.

The rail rate determines the net price the producer receives.

Sometimes, however, increases in rail rates may translate into the railroads covering capital improvement expenses and lead to improved rural infrastructure and transportation service.

During 2011, grain rail tariff rates increased to a record high average of $2,998 per railcar after a decrease to $2,616 during 2009.

From 2003 to 2011, rail rates increased 78 percent for grain and oilseeds, as all other commodities went up 67 percent.

Of the four major grains and oilseeds, soybean rates, at an average carload rate of $2,903 during 2011, increased the most, up 105 percent.

Wheat had the next largest increase, 88 percent, as well as the highest average carload rates, $3,303, during 2011.

Average corn rates increased 78 percent and averaged $2,899 per carload.

Sorghum had the smallest increase in average rates, 71 percent, and the lowest average rate per carload, $2,797.

In comparison, railroad costs went up only 48 percent from 2003 to 2011.

Had grain rates increased only 48 percent from 2003, average carload rates for grain would have been only $2,398, $600 lower than the 2011 average carload rate.

An average carload rate of $2,398 for grain during 2011 could have boosted rural economies by approximately $1 billion ($600 x 1.66 million carloads).

However, lower average carload rates may have decreased railroad investment in the rail lines serving rural communities.

For more information, call Surajudeen (Deen) Olowolayemo, USDA, at 202-694-3050.

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