The cost of shipping commodities on domestic rail systems is rising, and it’s putting pressure on U.S. farmers’ and ranchers’ bottom lines. Daniel Munch, associate economist with the American Farm Bureau Federation (AFBF), said rail rates on agricultural goods have risen as much as 18%.
“One of the main takeaways from our research was a clear increase in the cost of shipping agricultural commodities on domestic rail systems,” Munch said. “Rail rates on corn have gone up 13%; on soy, have gone up 11%; and on wheat, 7% over the past five years. Similarly, rates to transport ethanol increased 18% or about four cents a gallon.”
Much to his surprise, Munch said the rising cost of fuel wasn’t a primary driver in the higher cost of shipping freight via railroad.
“Adjusted for inflation, rail fuel costs have remained quite similar to 2018 and 2019 rates, unlike what consumers are experiencing at the pump,” he said. “They have increased quite a bit in the past year but mainly as a comeback from COVID-19-related demand shocks. Additionally, demand for freight rail from the ag sector, at least, has remained steady over the past five years with a few spikes associated with increased exports. So, overall fuel and transportation demand were not clear pressures for increased rail rates.”
Munch analyzed shipping rates by origin and destination states. In both cases, Munch said states east of the Mississippi River had the highest increases.
Reduced competition in the rail market is also playing a role in the rising cost.
“In the ag sector, we found that over the past 15 years, non-competitive rail movements or routes not subject to strong competition have increased from 20% of revenue to about 42% of revenue when there’s limited competitive forces,” he said. “This can incentivize price-setting behavior and disproportionately impact rail customers like farmers and ranchers, who are limited in their ability to choose other options to transport their goods.”
Learn more about freight rail rates impact on farm expenses in AFBF’s Market Intel report.