RENO, Nevada – For U.S. wheat farmers, high prices mean high rail rates.
As prices rose last year, so did freight rates charged by Burlington Northern Santa Fe, the railroad that dominates the grain-hauling business in the northern Great Plains.
Farmers aren’t happy about it, but a senior executive with the rail company makes no apologies for the decision.
“Because the price (of wheat) is up, that’s a factor,” said Philip Weaver, BNSF’s vice-president for agricultural commodities.
Canadian farmers are accustomed to rail rates that reflect the railways’ costs plus a specified margin. But that’s not the way it works in the deregulated U.S. rail industry.
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In an interview after speaking to the annual convention of the U.S. National Association of Wheat Growers, Weaver said when prices are up, demand for rail service is up and that means the market can bear a higher freight rate.
“Demand has to be up for us to raise these rates. You can’t raise rates on a down market.”
While that makes sense to the railway, it has left some wheat farmers unhappy, especially in Montana, which is served only by BNSF.
Jim Squires, who farms at Glendive, Mont., said farmers in that state are clearly paying more because they have no other choice.
“There’s no rail competition whatsoever in Montana and because of that we’re just subject to their increases,” he said.
Squires said the railway made no bones about the fact that it was raising rates last fall in response to higher grain prices and that didn’t sit well with many producers.
“Basically they told us ‘we will charge what the traffic will bear,’ ” he said. “They said ‘you guys are having good prices and it’s fair for us to enjoy part of that bonus’. “
He said farm groups in the state have complained to federal regulators and to the rail company but to no avail. In fact, they’ve been told to expect further rate increases this year.
Squires pays freight of $1.02 (U.S.) a bushel for a 52-car rate to ship wheat to Portland, Ore. That works out to about $50 a tonne in Canadian funds, about $20 more than the current rate from central Saskatchewan to Vancouver.
Competition determines rate
Many Montana farmers are especially annoyed because their rate to Portland is higher than the rate from more distant states like Nebraska, where there is competition. The lower rates in those states means grain from there is usually shipped first.
Montana farmers have explored lots of ideas to create a more competitive environment, including the possibility of building a short-line railroad to link up with the Canadian rail network.
Not only could Montana farmers take advantage of lower Canadian rail rates, but the existence of such a line could lead to lower BNSF rates. Squires emphasized there have been no concrete steps taken to pursue the idea.
NAWG directors later passed a policy resolution asking the newly created Surface Transportation Board to develop policies to deal with issues like protection for captive shippers, reasonable rates, rail abandonment, car allocation and corporate mergers.
