In the trade of agricultural commodities, making an efficient and timely delivery to the marketplace is often a costly and competitive endeavor. Conflicts arising over the availability of transportation resources can present formidable challenges to producers, processors and consumers.
Clash For Resources: Energy And Agriculture
The two primary determinants of efficient transport are availability and cost. As in most demand-oriented industries with limited capacity, supply dictates price. In the event of an unforeseen industrial boom, the strain placed upon supply-chain infrastructure can act as a catalyst for the growth of transport cost and create various product backlogs.
The North American shale oil boom of 2008-14 is a prime example of competing industries attempting to secure an adequate portion of limited transportation infrastructure. Advances in drilling technology (fracking) brought about a robust increase in production from regions that lacked the ability to transport the newfound quantities of oil.
Roaring production from the Bakken oil fields of North Dakota, South Dakota and eastern Montana spiked demand for rail cars across the region. By 2014, more than 700,000 barrels per day were moving out of the Bakken by rail, nearly 60 percent of total production.According to a 2014 Department of Energy report, shipping of crude oil by rail increased dramatically over the course of the shale boom:
|Year||Number of Rail Carloads|
|*Higher than in any previous quarter|
The demand for transport capacity created by the petroleum industry directly affected crop delivery from the grain and oilseed producers of the Upper Midwest. Burlington Northern Santa Fe (BNSF), Canadian Pacific (CD) and other railroad companies actively pursued oil instead of grain cargo as a means of securing higher fees and year-around demand. According to a USDA report for 2014, average bids for Upper Midwest grain transport hit record highs approaching US$6,000 per rail car. In relation, the cost of barge transport rose 11 percent.
Crop producers took the brunt of the economic pressure. The subsequent shortage of available rail cars generated enormous backlogs of soybeans, wheat and corn. This had profound economic consequences for regional producers:
- USDA estimates for 2014 stated that Upper Midwest grain and oilseed producers received
- USDA projected a 3 percent loss
- A University of North Dakota study approximated the loss sustained by North Dakota’s farmer revenue to be
Consumers also experienced a considerable shift in market conditions. Regional cash prices for grains reflected the limited availability of marketable supply. As a result, select products from the Upper Midwest saw a precipitous rise in cash value. The following prices are taken from the Wall Street Journal spot market database for September 1, 2014:
|9/1/14||Wheat, Spring14%-pro Mnpls||9.0225||+ .2450|
|9/1/14||Oats, No. 2 milling, Mnpls||3.8475||+ .2175|
|9/1/14||Barley, top-quality Mnpls||6.10||+ .65|
Although a variety of factor caused the rises in the spot price of Minneapolis wheat, oats, and barley, the increases were at least partially due to the spike in regional transportation costs for 2013-14.
The impact of transportation infrastructure upon a specific product’s marketing is dependent upon both geography and the locations of competing industries. Although many logistics challenges are temporary or cyclical in nature, a periodic disruption to the supply chain can be devastating to producers and force consumers to adjust their behavior.
Transportation has advanced by leaps and bounds over the course of human history. The early days of freight involved horses, camels and wooden schooners. Gradually, the mechanized era of railcars, freighters and tractor-trailers evolved commerce from a local to global enterprise. The ability to transport goods in a timely, cost-effective manner is an ongoing concern facing producers around the globe.
Get Your Ag Marketing Plan
Ag producers like you need a sound marketing plan to thrive in today’s competitive markets. There is no such thing as a cookie cutter ag marketing plan. Every producer’s plan varies based on several factors. Take a brief online survey to give us an overview of your operation, and we’ll send you a free marketing plan. Even better, we’ll provide a complimentary, no-obligation consultation.