State Variation in Railroad Wheat Rates

Abstract

Wheat shippers in the Central Plains states have no cost effective transportation alternative to railroads. Wheat produced in these areas moves long distances to domestic processing and consumption locations or to ports for export. Wheat shippers in the Great Plains don’t have direct access to barge loading locations and trucks provide no intermodal competition for these movements. Wheat shippers in Montana and North Dakota are highly dependent on rail transport because they are distant from barge loading locations and intra-railroad competition is limited. In North Dakota, the BNSF controls 78% of the Class I rail mileage, and in Montana, the BNSF controls 94%. Montana ships nearly 100% of its wheat by rail. Unlike Montana and North Dakota, the BNSF and UP have roughly equal track mileage in Kansas. The BNSF has 44% of the Class I rail mileage and the UP, 55%. Also, both railroads serve the major Kansas grain storage and market centers. A 2010 USDA study found that in 1988, Montana and North Dakota had the highest rail grain revenue per ton-mile of the 10 major grain producing states. By 2007 this was no longer the case. The overall objective of the paper is to investigate railroad pricing behavior for the shipment of North Dakota, Kansas, and Montana wheat. Specific objectives include (1) develop a model to measure the impacts of railroad costs and competition on rail wheat rates for North Dakota, Kansas, and Montana, (2) identify and measure the major cost determinants of rail wheat prices, and (3) measure intermodal competition by comparing rail wheat rates in captive markets (Montana and North Dakota) to one with more intermodal competition (Kansas). The results indicate that there is little difference in average Montana and Kansas rail wheat rates per ton-mile. However, North Dakota average railroad wheat prices per-ton mile are higher than average Kansas rates per ton-mile.