Farmers complain about BNSF rates to STB

Trains Magazine General Discussion
81

Let’s see. If the average goes up 8.2%, that’s the same as “going down.” In other words, you had no idea what you were talking about, it was clear, so you changed the subject.

It has long been clear that ag is not an industry you know anythiing about. Your math on rail cars was bad enough – five loose cars a day will make “hot trains run late.” But, this is so obviously outside your experience, I’m not sure why you insist on commenting. Actually, I’ve wondered that on several threads. You have lots of opinon, few facts, and almost no analytical sense.

The above is a good example. In Montana, 2004 was a severe drought year. Think that might affect yield? You wouldn’t know.

Did they teach them that wheat plants don’t need water? Of course drought impacts yield considerably. Is that any more significant than concluding that farmers shouldn’t raise wheat in Wisconsin, because it has had severe droughts, or Texas, because it has had severe droughts, or Kansas, because it has had severe droughts?

Of course not. It is a conclusion only you can make, because of what appears to be nearly complete ignorance on the topic.

The point of the comment was simply to show that as agriculture expanded to the allegedly poorer soils, average overall yield did not decline for a variety of factors during that entire time, including planting improvements, fertilizer improvements, harvesting improvements, plant improvements, a variety of things, and affected by things like soil depletion and weather.

Now you are able to conclude from that that Montana, the third largest wheat pr

82

Hmmm, and since Montana is the third largest wheat grower, pays the highest shipping costs in the nation, but is 16th in the nation in terms of farm subsidies, your comments on Montana mean … what?

Don’t you think its a little odd that those Illinois farmers get three times the subsidy as Montana farmers? Tell me more about “political agendas” and how BNSF is “taking it in the shorts” by charging higher prices to Montana farmers, but not “taking it in the shorts” when it is charging substantially lower prices to those Illinois farmers who already enjoy three times the subsidy?

Rank --------- State --------- Amount -------- Percentage

  1. Texas ----- $12,899,984,867 ---- 9.0%
    2 Iowa -----$12,541,321,124 ----- 8.7%
    3 Illinois ----- $10,664,346,498 ----- 7.4%
    4 Nebraska ------ $8,274,584,703 ----- 5.8%
    5 Minnesota ----- $8,210,073,011 ------ 5.7%
    6 Kansas -------- $7,992,519,474 ------ 5.6%
    7 Arkansas ----- $6,705,286,472 -------4.7%
    8 North Dakota ------- $6,247,445,370 ------ 4.3%
    9 California ------ $5,301,039,851 ------- 3.7%
    10 Indiana --------$5,215,455,705 -------- 3.6%
    11 Missouri -------- $5,042,768,281 ------- 3.5%
    12 South Dakota -------- $4,769,310,834 -------- 3.3%
    13 Mississippi ------- $4,689,361,125 ------ 3.3%
    14 Ohio ------- $3,847,882,164 -------- 2.7%
    15 Wisconsin -------- $3,393,811,536 ------- 2.4%
    16 Montana ---------$3,373,915,141 ------- 2.3%
    17 Georgia --------- $3,173,828,694 –
83

Michael:

How do you figure the Illinois farmer gets three times the subsidy as the Montana farmer? It appears your figures are based on aggregate subsidies.

How are the subsidies based? Acreage? I dont know…I get the checks, but I dont know. Call me apathetic if you will, but the checks are so small that I have never stopped to determine them.

Regarding transporation costs…what is the average haul (mileage) for Illinois farmers vs Montana? Lots of Illinois corn and soybeans are locally used (ADM and others). Decatur, Il is very centrally located and processes quite a bit of corn and beans. I know some corn goes for export, but it would be interesting to see the average length of haul. With you resources…I am sure you will come up with it.

With the ethonol plants going up on every block, there is a stronger demand for corn and the length of haul should be pretty short.

I maintained back in the original thread months ago that part of the problem with Montana and Dakota wheat is the length of haul and the need to add value to their product. Both are high hurdles to jump.

ed

84

Well, let’s just conceed, for the sake of argument, that I’m a complete moron. After all, I disagree with you What further proof does anyone need. And furthermore, I can’t do math at all.

But I am not so complete a moron as to falsely claim, as you do, that an 8.2 bushel per acre increase in Montana wheat production per acre from 1910 to 2004 is a "8.2% increase. "

The statistics you cited said the average acre of wheat in Montana yeilded 26.3 bushels in 1910 while the 2004 yeild was 34.5 bushels. That’s a 8.2 bushel increase. That’s pathetic considering the impovements in farming since 1910. It’s only a 31% increase. Again, that’s a pathetic increase in farm productivity since 1910.

But again, you misrepresent the numbers - falsely calling it to be an “8.2 %” increase.

Look, a 8.2 bushel per acre increase is not an “8.2 percent” increase as you claim.

And yet, you criticize MY math.

You use numbers without understanding the numbers. I deal with people like you every *** day. You folks cause a lot of useless trouble.

85

And three months ago I pointed out in excrutiating detail that Montana/North Dakota rates are 130-150% higher FOR THE SAME DISTANCE shipped by nearly any other wheat grower in the country.

The length of haul of wheat, Montana/Portland, is a relatively short haul by railroad standards, averaging 780 miles. The overall system line haul is something around 1200 miles on BNSF. The Montana distance is 65% of the average line haul distance for all traffic on the BNSF; that does not support an argument that Montana wheat is somehow handicapped by distance.

Best regards, Michael Sol

86

Unlike you, I am responsible to clients and customers for my numbers and have been for 35 years, and especially so when I was in engineering. The 8.2% is an obvious typo, replace % with “bu”, and I am sure that it will jump right out at you Neither of which has anything to do with the math, but of course which does have a lot to do with the fact that both represented increases, which is the opposite of what you claimed.

By the way I am sure you can see the difference – an error of labelling which oddly enough has nothing to do with the math involved. I guess you got that wrong too.

“You folks cause a lot of trouble”.

When you feel strongly and know little, it of no doubt great trouble to you. People like you are everywhere: all opinion, no facts.

This thread is typical: not one fact, not one useful idea, not one shred of evidence that you have anything to offer on this topic.

But, here you are. And the thread goes downhill.

Again.

Best regards, Michael Sol

87

Oh, I am not disputing the fact that the Montana rates are higher than others. We have discussed that.

What is the average length of haul for Montana wheat vs say…Illinois corn? What percentage of Montana wheat that goes the distance to the Pacific? What percentage of the Minnesota wheat goes the distance vs what is process locally?

Those are fairly important figures to know when looking at the entire picture.

Without competition in the form of other railroads, water, or a method of adding value to the product it is tough situation. The obvious answer, if one cannot lower costs is to increase revenue and how that is done in a commodity market is based entirely on supply and demand. So, somehow either increase demand, lower supply or add value to the product. None of which is easy.

ed

88

Well, I referred to “Illinois farmers,” and “Montana farmers” attempting to assert that the farming community, industry, however one wishes to label it, receives the stated amounts, and that this was on a statewide basis.

The figures are aggregate. On a “per farmed acre” basis, Illinois receives $391 per acre in farm subsidies, and Montana receives $57 per acre. On that basis, Illinois farmers receive approximately Seven times the subsidy per acre farmed as Montana farmers.

Best regards, Michael Sol

89

You are repeating yourself. Let me repeat myself.

In Montana, the year 1910 was a year of abundant rainfall. As I pointed out, railroad literature was distributed far and wide proclaiming the superior fertility and productivity of Montana soils. The railroads could not have survived out West but for the farmers; there wasn’t intermodal, not enough chemical, industrial, and forest combined to support the railroads the way the farmers did.

The farmers came West, they planted, and they shipped. They made the railroads possible.

And 1910 was a very good year for rainfall.

The Year 2004 was classified by USDA as “severe to extreme” drought in Montana.

It is clear from your above statement that you don’t get the connection between rainfall and crop productivity. It is to farming what the track is to the train in railroading.

Best regards, Michael Sol

90

Ok, here we go. Time to analyze a few points made here. BTW, I am using numbers provided by Michael, I must assume his sources are good.

  1. Based on statements made, the average Montana farm net income is $67,000 per year. Also, the average Montana farm is 2139 acres. Thus, the average net income per year would be $31 per acre, not $12 per acre, as stated.

  2. As of 2003 BNSF engaged in “inverse pricing”. I must assume that since the term “as recently as 2003…” that the inverse pricing is not a current issue, nor was it in 2004.

  3. Michael, you indicated there was a $44 per acre penalty for Montana farmers due solely to BNSF pricing. Check again. I am going to use your figures. It appears that the average yield is between 28 to 34 bushels per acre. So, lets use 31 bu/acre. Average farm is 2139 acres. Thus we have:

Average farm produces 66309 bushels of wheat per year.
2005 price per bushel = $3.31
Average revenue per farm = $219482
Average net income per farm = 67,000
Thus expenses = 152482

Average carload (870miles = $3066
Capacity = 3450 per car
Cost per bushel = 89 cents per bushel

Are you with me so far? Thought so…pretty simple math.

Montana cost per tonmile = .038
National average per ton mile = .024
Thus National average = 63% of what Montana pays per ton mile.

If we take the 63% of $3066, we will find the cost Montana would pay, if it paid the national average per ton mile for a carload of wheat.

That number = $1931 per car
per bu (1931/3450) = 56 cents per bushel

Thus, it could be said, when looking at the 89 cents vs 56 cents that Montana pays 33 cents per

91

Ed,

He’s probably not gonna’ like your math.

Ken

92

now i can see why both kids had to go to the principals office.

what a convoluted and confusing way to point out what the railroads and farmers have been doing to each other for the last 150 years (and don’t criticize my math).

when it’s all said and done, the farmers will still suffer, and the railroad will get smaller due to public resentment. this is an old story, and i can’t believe i wasted the time to read all five pages.

-rrick

93

I never had to go to the principal’s office. I was the one that stayed in the classroom and checked the numbers.

BTW…I sort of see Michaels point. There is a very fine line between maximizing your profit and driving away business. I live that every day.

My point is this…BNSF reacts to market pressures among other things. In other parts of the country there are rivers, lakes, or other railroads. None apparently exist in Montana (dont know, never been there, but I might soon).

In my line of work, my “rate” goes from slightly below our costs to 50% profit, based primarily on market conditions of competition. However, if I am developing business and it needs to be at a certain pricing, more than likely I will shed the fact there is no competition and get the business. However, I dont price all of my customers uniformly, nor do I reduce my margins for all customers when I reduce it for one.

Montana shippers have no alternative. We can talk all we want about inverse pricing, STB, variable costs, 160%, etc. but in this case it comes down very simply to leverage, as I have stated in the past.

Railroads are finally at a point where they are getting pricing power. More power to them. Their returns have been lousy for years…no make that decades…or even centuries. This is not about the family farmer vs Chinese imported plastic goods. A group of managers whose paycheck depends on maximizing profits has found the key to the candy store…nothing different than what Bill Gates, Lee Raymond, or Warren Buffet do. One of the keys to Warren Buffet’s success over the years has been to look at a company’s franchise and determine whether or not they have economic leverage. He once told his son who was contemplating farming in Central Illinois “Howie, ADM is not going to pay more for your corn, just because you are Howie Buffet.” Point well taken, commodities, even oil are priced according to availability.

Check the numbers Michael pro

94

What you’re missing is that until Staggers, rail rates were regulated to reflect mileage based hauls, and frankly there were more railroads to do business with. The rate differential between Montana grain shipments and Nebraska grain shipments with the same destination and same relative mileage was for all intents and purposes indistinguishable. Since Staggers, you get to the point where the captive shippers like Montana are paying double the rates of the non-captive shippers like Nebraska.

So it’s not an analysis of the last 150 years of acrimony between farmers and the multitude of railroads, it’s the focus on the last 25 years of acrimony between suddenly captive rail shippers and the immense railroad oligarchy. It’s a situation that needs to be rectified before we lose our ag and industrial base to foreign producers.

95

No they weren’t. Prior to Staggers, we charged less to move a load from New Orleans to Chicago than we did to move a load from Chicago to New Orleans. The miles are obviously the same.

Mileage is only one small factor in rail costs. Line haul miles are one of the cheapest parts of the rail cost structure. It can cost less to move a load 1,000 miles than it does to move a load 750 miles. It depends on a lot of things such as supply, demand, terminal efficiency, etc.

96

Oh, boy, here we go again…

I thought I was watching the ad for “Chicken Little” again…

But, no, it’s just FM with his usual, “the sky is falling” approach to railroads…

Of course, in the pre-Staggers world many of the granger roads were nearly or really bankrupt. Look at the finances of the CRIP, MILW or CNW and you’ll find that all were having a tough go of it.

Also, the dynamics of the grain markets have changed quite a bit over the years with a large shift to we

97

The math is fine, the assumptions are wrong, and for that I bear some of the burden.

The average national ton mile rate I used is for all railroad carriage, not just wheat. So, unless you can think in terms of gallons of oil per acre, Hondas per acre, and VCR’s per acre, there is no comparability between that national average, and the average rate for wheat, and by the time that analysis gets to rate per acre, the train is pretty far off the track.

My wheat acreage cost of tranportation per acre is derived from an average of all BNSF wheat rates, creating algorithims to permit that average to be derived at any given point (mileage) and then comparing the Montana rate with the average rate. That is, the wheat rate per acre comparison is calculated compared to an average wheat rate per acre, not an average of all railroad transport. That is not the method Ed uses above, and his result is naturally different, and also partly for the reasons below.

My point in comparing the rise in wheat charges to overall carriage rates was to show that while railroads have been able to offer that enormous productivity gains have been obtained, permitting rates to tumble over the past 20 years, the fact that those productivity gains apply as much to grain as to any other item. This is to suggest that Montana grain, which was highly profitable for railroads 30 years ago, cannot be anything but enormously profitable today and that arguments that it is expensive to haul because of distance, which is what Ed suggested at one point, is simply not valid because a key factor, distance, hasn’t changed in the intervening 30 years, while the railroads themselves claim that costs have plummeted.

The Montana farm figures, like the Illinois farm figures, can’t be used in the fashion that Ed uses them. The stumble is that neither Mont

98

It is an “issue” because the railroad engages in it. Inverse pricing caused enormous problems in 2003 for both farmers and the railroad. It was an incomprehensible policy. The Montana Legislature met in 2004, and rates always get adjusted to be “reasonable” just about the time of the biannual Legislative sessions, along with major announcements along the lines of “We Promise to Be Good.”

BNSF offered several “special” tariffs in 2005, and these are usually where inverse pricing shows up. They are usually relatively short term. Since I haven’t reviewed any of BNSF’s special tariffs for 2005, I couldn’t say whether there was or wasn’t any inverse pricing. Since I haven’t looked at them, the safe and accurate thing to say was “as recently as 2003,” without suggesting anything more either way.

Best regards, Michael Sol

99

It does.

The premium received, and more, is paid over to the railroad, and so there is no benefit from the farmers for the higher price that Montana wheat receives.

Best regards, Michael Sol

100

Regulated tariffs show an approximately 93% or greater correlation with mileage through linear regression analysis. For a statistician, that’s not a “small” factor but very close to a sole determining factor.

Under deregulation, competitive rates are approximately 55-75% correlated with mileage, and non-competitive rates to captive shippers can correlate as high as 97% with mileage.

Best regards, Michael Sol