Steel and Wheels to Dollars and Cents

transportation

How the U.S. transportation system affects your bottom line

Mike Appert is enjoying one the best harvests he’s ever had. But his excitement doesn’t last long because he knows he’ll get much less for this crop than he could have in previous years.

On top of soybean prices sitting at four-year lows, his basis will also take a hit from railroad difficulties that continue to delay the movement of soybeans and other crops to the Pacific Northwest for export. Those difficulties take a big bite out of his profitability.

Transportation matters to your competitive edge.

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“Right now, the basis on soybeans is about 25 to 40 cents wider than what it normally is,” says Appert, a soybean farmer from Hazelton, North Dakota. “We raise 500,000 bushels of soybeans, so if our basis is 40 cents wider than normal, that’s $200,000. If our basis on corn is 50 cents less than normal and we raise 750,000 bushels, that’s $375,000. Just on my farm alone, it’s over a half-million-dollar impact.”

The U.S. transportation system is responsible for moving U.S. soybeans from primary growing areas in the interior of the country to domestic customers, such as animal agriculture, food manufacturers and industrial users, and to ports for shipping to international markets. This shipping infrastructure has historically been one of the best in the world at covering large distances at great speeds, giving U.S. soybean farmers a competitive advantage over farmers from South America.

However, this edge will not last forever. Brazil and Argentina continue to invest in transportation infrastructure improvements, while U.S. transportation modes are in need of updates and improvements.

“The U.S. highway, rail and waterway systems are in need of repair and expansion,” says Dwain Ford, soybean farmer and United Soybean Board farmer-leader from Kinmundy, Illinois. “Many of our current locks and dams on the Mississippi and Illinois rivers are more than 50 years old and have had little or no improvements. As this aging waterway system deteriorates, more pressure is put on the rail and highway systems to move U.S. shipments.”

Aging locks and dams on rivers and increased pressure on railways and trucks to move freight not only risk disruptions in the supply chain, but also have a negative impact on U.S. soybean farmers’ bottom lines.

As this year’s expected record-setting soybean crop continues to come in, it will only add fuel to the fire.

Barges: The most economical, efficient mode for transporting U.S. soybeans.

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“It’s more bushels that need to be put in an already overloaded system,” Appert says.

How Your Checkoff Dollars Are Addressing the Issue

Appert serves as a farmer-volunteer on the Soy Transportation Coalition (STC), which works with the soy checkoff to raise awareness of this issue. While waterways depend on government funding, the railroads have an opportunity to invest privately to help solve the impending transportation crisis.

The checkoff commissions studies to gather data on how transportation issues affect U.S. soybean farmers. A few recent examples include:

  • Expanding Rail Infrastructure – This study looks at the current national freight system and assesses its capacity to support economic growth in agriculture and the rest of the economy. It assessed the potential impacts of government programs that could expand the rail sector’s capacity to alleviate highway congestion and create a more efficient transportation system overall.
  • America’s Locks & Dams– This research examined the condition of key river locks, analyzed their usage and determined which are most likely to suffer catastrophic failure.
  • Farm to Market – A Soybean’s Journey – This report analyzed the transportation of soybeans, soybean products and other grains and products. The conclusions define and quantify the impact of the infrastructure on U.S. agriculture production and moving that production from farm to final market position.

Costly Road Ahead

Stress on the transportation infrastructure affects all links in the supply chain. Cargill, a processor and distributor, handles or crushes up to 750 million bushels of U.S. soybeans each year. The company’s operations depend on an efficient transportation system.

“We have many locks and dams that are well past their design life,” says Rick Calhoun, president of Cargo Carriers, a Cargill business. “Should they fail, we could have massive disruptions in the supply chain, which would drive up costs and reduce our ability to participate in the world market. Railroads are already struggling as they attempt to keep up with demand from all sectors of the economy. The real cost of transportation is on the rise.”

Railroads: Providing the long-haul movement for soy.

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Increased dependence on rail make this problem even worse in the Northern Corridor, the area between the Pacific Northwest and Chicago – and all the soybean-growing areas in between.

“This year alone, BNSF is investing approximately $1 billion to improve and expand rail capacity in states along our Northern Corridor,” says John Miller, BNSF group vice president for agricultural products. “This is a key route for several business segments, including agriculture.”

Awareness of the transportation issue and the actions needed to turn the situation around can’t move fast enough, Appert says.

“The railroad is putting more rails down and adding double tracking so that they can speed up their turnaround times,” Appert says. “These projects are very expensive and take a lot of time — it’s going to take a few years to get this straightened out and back up to a reasonable level.

“We have a big crop this year in the U.S., so hopefully our transportation system can handle it — it’s our only option.”