Transportation costs, an obstacle to farmers profits

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Soy Transportation Coalition

June 14, 2010 – An analysis performed on behalf of the Soy Transportation Coalition documents the strong relationship between our nation’s freight transportation system and individual farmer profitability. The study provides compelling evidence that farmers, more than any other segment of agriculture, are responsible for paying the transportation costs from the farm to the dinner plate.

Dean Campbell, a soybean producer from Illinois says that seeing how transportation has a major impact on our individual bottom line, farmers should be among the leading advocates for a well-maintained, reliable transportation system. In periods of strong worldwide demand  the ultimate customer will pay the costs – including transportation costs – for obtaining the shipment of soybeans. However, after the temporary demand pull is over the market will adjust and increases in transportation costs will always be passed back to producers.

The resulting graphs exhibits how transportation costs are disproportionately absorbed by farmers.

In the graph from Indiana the correlation between transportation costs and original basis (farmers income) is clearly evident. As transportation costs rise, origin basis diminishes. When worldwide demand – particularly in China – was strong and supply was diminished due to drought conditions in South America the correlation between transportation costs and origin basis was not existent. This dynamic was observed in all 36 locations analyzed for the study.

Farmers may be tempted to believe that once their grain has been delivered, any subsequent transportation costs are the problem of the elevator. The Soy Coalition advises that farmers should be active to ensure we have a transportation system that is not an obstacle to their profitability.

Read complete report here