Freight Congestion: Ag Impacts
Annual Industry Losses
If the oil currently flowing on the Dakota Access Pipeline (DAPL), which is equivalent to more than 1,100 rail cars per day, were to instead shift to the Midwest rail system, severe freight congestion should be anticipated, as was seen during 2013-2014, and the Midwest agricultural sector could suffer more than $3 billion in annual losses.
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Billion in Producer Losses
Billion in Processor Losses
Million in Ag Input Losses
Farmers may receive lower prices for grain, because shippers pass back increased freight costs via lower grain bid prices (weaker basis). The competitive basis landscape may shift for all grain anywhere there’s a rail market (i.e. the entire Midwest) with higher secondary freight prices in a congested environment.
Across 18 states, producer losses may add up to $1.51 billion annually at today’s shipping volumes.
Processors may pay increased freight costs and lose production when rail service cannot be delivered in a timely manner. Railroad resources (tanker cars, locomotives) would get enlisted to oil movement. As a reminder, nationwide ethanol production decreased by 80,000 barrels per day between December 2013 and March 2014 during the pre-DAPL freight congestion.
Ethanol industry losses may add up to $1.48 billion annually.
Ag Input Losses
Higher freight costs would also affect ag retailers and their customers. The fertilizers and agricultural chemicals (herbicides, fungicides) that are necessary to produce crops also rely on rail service to reach their destinations and will rise in price as freight costs increase.
Ag retailers and farmers may pay $45 million more annually to receive necessary products.
In a freight-congested environment, each bushel of corn in certain states may lose between $0.17 and $0.42 of market value, each bushel of soybeans may lose between $0.11 and $0.27 of market value, and each bushel of wheat may lose between $0.18 and $0.46 of market value (per an analysis made by the USDA Office of the Chief Economist in January of 2015 – “Rail ServiceChallenges in the Upper Midwest: Implications for Agricultural Sectors – Preliminary Analysis of the 2013-2014 Situation”). After extrapolating those losses across all the rail-shipped grain from Minnesota, North Dakota, South Dakota, and Montana, the USDA estimated grain and oilseed producers throughout the Upper Midwest may have received $570 million less for the crops they marketed in 2014 than they could have earned in a normal freight environment.
The volume of grain and other agricultural commodities that are produced in the United States and that need to be shipped by a more-burdened rail system have increased, driving up the stakes for receiving reliable transportation. Service losses and volatility in freight prices can be confidently predicted to be worse in 2023 than in 2013-2014 if the rail network becomes congested with DAPL-displaced oil again in the current freight environment.
Meanwhile, annual U.S. rail carloads of ethanol reached 438,199 in 2021, a 40% increase over 2014 levels. The scale of disruption to the ethanol industry would therefore likely be considerably worse today if 2014-levels of congested rail service occurred in 2023.
The nation is also currently shipping more fertilizer by rail than ever before (6,550 carloads perweek), making this already-tight market vulnerable to any sudden unexpected spike in freight demand. Freight costs for nitrogen fertilizer were $50 per ton higher in the 2013-14 congestion period than they were after DAPL relieved the oil train congestion.
 Grain Transportation Report Datasets https://www.ams.usda.gov/services/transportation-analysis/gtr-datasets.
 DTN Market Tracker database of local grain basis bids https://www.dtnpf.com/agriculture/web/ag/markets/local-grain-bids
“Basis” is a commodity’s local price offset from the benchmark futures contract (a local grain elevator’s price of $3.00 per bushel might compare to the Chicago corn futures price at $3.50 and be called “minus $0.50” local basis). Stronger (less negative) basis values are more favorable for farmers. To compare grain market scenarios across timeframes, we use basis values instead of flat price values. Corn prices may have been $5 per bushel in 2008 and $3 per bushel in 2020 for a multitude of reasons unrelated to the corn market’s own supply and demand (geopolitical factors, investment flows, outside market influence). Meanwhile, the local basis values directly express the supply and demand of the physical commodity moving through a supply chain and can be compared across geography and across time.
This chart shows the spike in railcar bids during the 2013-2014 freight congestion as a broad average across multiple types of bids.
Understanding the risks and opportunities.
Commodity Market Analysis
The Grain Markets