NAWG fact sheets explore grain movement basics

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Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain
Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association.

To help explain some of the more basic principles of the U.S. grain transportation system, the National Association of Wheat Growers (NAWG) Foundation and theWheat Industry Resource Committee have published a series of five fact sheets on grain transportation issues.

The easy-to-follow material describes how local wheat prices are determined, how supply and demand affects the availability of rail cars, how transportation pricing helps cover a shipper’s risk, compares barge, rail, and truck costs, and reviews government policies that affect transportation.

Texas A & M Economist Steve Amosson and Henry Bahn, national program leader with the Extension Service in Washington, D.C., prepared the fact sheets.

Copies of any or all of the fact sheets are available free of charge by writing to the NAWG Foundation, 415 Second Street, NE, Suite 300, Washington, D.C 20002. Copies are also available through your state wheat growers association.

Here’s three edited excerpts from the wheat logistics fact sheets:

Determining your local bid

The price country elevator managers receive from other markets determines the bids they can offer local producers.

Example: On April 26, 1994, a country elevator manager in Gladstone, ND, bid producers $4.94 per bushel for 14 percent protein dark northern spring (DNS) wheat. After examining wheat prices at larger markets, it is evident how Gladstone formulated its bid.

On the same day, 14% pro DNS wheat was priced at $5.16 at Minneapolis and $6.13 at Portland. For a 52-car train, transportation costs were about 65 cents per bushel between Gladstone and Minneapolis, while they were about $1.05 per bushel between Gladstone and Portland.

On this particular day, the Gladstone elevator manager would sell grain to markets in the Portland area to receive the highest gross return ($6.13 - $1.05 = $5.08 for Portland compared to $5.16 - $.65 = $4.51 for Minneapolis).

Harvest bottlenecks: blame S&D

The demand for transportation can exceed the supply, resulting in a rise in the price of transportation. Say that elevators in Fergus Falls, MN, and Garden City, KS., need to move wheat, but only a limited number of railcars are available. Generally, the winner of the competition will be the elevator willing to pay the most — net of the carrier’s cost. The loser will have to wait until more transportation becomes available at a cost he can justify.

Indeed, the seasonality of grain production is often at the heart of grain movement problems. About 65 percent of wheat is moved to markets within three months of harvest, potentially leaving transportation vehicles underutilized for the remainder of the year.

Why isn’t more wheat handled by truck?

The reason is distance and operating costs. Both barge and rail have significantly less operating cost per mile than trucking. This fact can be illustrated by comparing the resources needed to haul similar size loads.

One tow of 15 barges is the same as 2.5 unit trains consisting of 100 jumbo hopper cars each. It would take 870 semi-trucks to haul an equivalent amount of wheat.

Therefore, 870 drivers would be needed compared to the much smaller number of employees needed to operate a tug boat or 2.5 unit trains. This same logic can be extended to include fuel, repairs, and maintenance costs.

The trucking industry, with low fixed costs, has an advantage in the short-haul business. As haul distance increases, the railroad becomes the low-cost carrier due to lower operating costs. As haul distance continues to increase, the barge industry replaces railroads as the low-cost mode of transportation.