US rail fuel surcharges pressure grain prices for farmers during harvest

Fuel surcharges on US rail grain shipments have risen sharply just as corn and soybean harvests are getting underway. According to USDA, the average surcharge reached $0.48 per mile per rail car in the second week of September, up 153% from a year earlier.

As a result, fuel surcharges accounted for 11% of total rail transportation costs for corn and soybeans, compared with 5% a year ago. Additional pressure comes from higher diesel prices, which have climbed above $6 per gallon, while Brent crude oil rose above $104 a barrel last week.

Higher transportation costs directly affect the prices farmers receive. Grain elevators and other shippers factor freight and fuel surcharges into cash grain bids, weakening basis levels. In Kansas, for example, the basis for hard wheat fell to around 70 cents per bushel below K.C. futures, compared with a more typical discount of about 40 cents.

The impact is particularly significant for producers without access to inland waterways who depend on railroads to move corn, soybeans and wheat to processors, export terminals and livestock feeding operations. With already thin margins, even modest increases in transportation costs can materially affect farm profitability.

According to the Surface Transportation Board, US railroads collected $2.93 billion in fuel surcharges in the second quarter, more than 90% above the year-earlier level. Analysts expect these costs to remain elevated through the end of the year, continuing to pressure the cash prices farmers receive for grain.

Tags: corn, prices, soybean, USA, harvesting, fuel, rail transportation