A Cost That Can Hit Like A Freight Train – for Sep. 16, 2010

Ask any farmer what fertilizer cost them last year and chances are you will get a very quick and accurate response. Likewise for herbicides, fuel, rent or any number of crop input costs, but what about freight? We’re not talking about trucking costs. I want to know exactly what it cost you to have grain railed from your elevator of choice to its final destination in Canada (port or processor). Most producers find that a difficult question to answer.

Agriculture Minister Gerry Ritz suggested earlier this summer the only people worried about freight rates were a few Canadian Wheat Board supporters, and that people involved with special crops were too busy adding value to their production to be bothered. He was partially right in that people shipping board grains have a better handle on what their rail freight costs are, because they are itemized out on CWB grain sales tickets. Special crops, however, are another matter.

For most areas of southern Manitoba, freight rates typically run around $24 per tonne, or 65 cents per bushel, for board grains. Freight adjustment factors (FAF) can add 22 cents or more to that if larger than normal stocks are shipped to Montreal rather than Thunder Bay, adding to rail costs. Freight, elevation and terminal costs combined will typically remove about $1.50 per bushel in deductions for our farmers, or at least that’s how it works for wheat and barley.

So what happens with special crops? Since those numbers are not itemized out on most special crops sales receipts, I decided to ask the experts – people who buy grain – and their answers varied. Does it cost $45 per tonne in freight and elevation to ship a crop like canola? Apparently the answer is “Sometimes.” While that seems to be an industry average, actual rates can vary from $31.50 to Thunder Bay to $56/tonne to Vancouver. Obviously not a lot of canola from Manitoba is being shipped through Vancouver.

Rail freight for non-board grains ends up in that great black hole known as “basis.” If someone wants your grain badly enough, they may be willing to pay a premium to have it railed there, and in that case, the buyer pays the freight. If the market is somewhat flat, and the shipper has to bear the cost, then it may be deducted from the price they pay the farmer, or in some instances, they may share the cost. These transactions can vary from company to company, from sale to sale, and from day to day. This is why we can end up with a $27 basis, when freight alone is pushing the $32 mark. The farmer’s actual share of that cost is not typically itemized out for non-board crops so it’s hard for an individual producer to know.

Canola is also a relatively high-volume crop as non-board crops go. What happens to small-acreage crops that can’t be loaded out in unit trains or 50-car spots? Buckwheat currently takes about $47.60 per tonne to make its way to Vancouver. Beyond that they have to containerize it and incur even more costs since there won’t be enough to load an entire ship. Containerizing adds another list of inefficiencies to the cost, in that the carloads have to match what fits into the containers, or some of your shipment could end up dumped on the dock. This often means cars are shipped with smaller partial loads.

People have often said that the answer to our high freight costs is to do more value-added and more domestic processing. When a farmer dumps a load of grain in the elevator, does he really get a better price if it goes to a domestic mill rather than one in China? Theoretically, reduced costs to the shipper should result in a lower basis and a better price for the producer, but as long as our export commodities are priced at the port positions, the farmer still pays for his share of the rail freight.

It’s hard to complain about a cost when you don’t know exactly what it is, but to say high freight rates don’t impact on special crops is simply not correct. Regardless of what is grown or where, we all compete in an active world market. It’s just harder to itemize out a cost that gets buried in basis. As long as our rail movement is preferential to large-volume crops, and our safety nets are tailored to monocultural activities, small-acreage crops will continue to be at a disadvantage

Any farmer who paid $50 an acre to fertilize a 50-bushel crop of wheat last year spent $1 per bushel on fertilizer. Any farmer unhappy with that return on his investment can make changes to his future operations to compensate for it. That same farmer will spend more to have his wheat moved through the elevator system to port, but all we can do about that is to continue to demand a rail costing review from our elected politicians.

– Les McEwan farms near Altamont, Man.

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It’shardtocomplain aboutacostwhenyou don’tknowexactly whatitis,buttosay highfreightratesdon’t impactonspecialcrops issimplynotcorrect.”

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