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Published November 05, 2009, 07:56 AM

‘Business as usual’ after Buffett sale

The $34 billion purchase of the Burlington Northern Santa Fe Railway by Omaha, Neb., tycoon Warren Buffett isn’t likely to affect local grain shipping rates, say the managers of local elevators.

By: Ross Dolan, The Daily Republic

The $34 billion purchase of the Burlington Northern Santa Fe Railway by Omaha, Neb., tycoon Warren Buffett isn’t likely to affect local grain shipping rates, say the managers of local elevators.

“It’s an investment group that’s buying the company and I don’t think it will have an effect on day-to-day operations — and it won’t affect our business much,” said Jim Morken, general manager for the Farmer’s Alliance elevator in Mitchell.

Jon Proehl, manager at the Dakota Plains Ag Center in North Tripp, had a similar appraisal.

“Shipping rates have increased incrementally for the past five years and (BN(SF Chairman, President and CEO Matthew K.) Rose has said it’s going to be pretty much business as usual,” he said.

It costs about 98 cents to ship a bushel of corn from South Dakota to the West Coast, up from roughly 75 cents a bushel five years ago, Proehl said. Soybeans ship at $1.11 a bushel, up from about 80 cents a bushel five years earlier.

Morken was philosophical about the hike.

“Everybody’s cost of business is increasing and they’re no different,” he said.

Uncharacteristically, grain prices have held steady — about $3.50 an bushel for corn and $9.25 for beans — this fall, even with the prospect of binbursting corn yields of 150 to 200 bushels per acre.

“Prices have rallied throughout harvest,” Proehl said, a factor that might help to soften the shipping bite for producers.

The Wall Street Journal has classified BNSF as one of the nation’s best-run and most profitable railroads. It is the nation’s second largest railroad, behind Omaha-based Union Pacific

“The BNSF has performed extremely well; they didn’t need this buyout,” said Proehl. “They’ve had higher profits every year.”

The railroad has proven that it’s still more economical to ship by rail than truck, he said.

Prior to the sale, Buffett’s investment company, Berkshire Hathaway, owned 22 percent of BNSF. Buffett’s company paid a premium price of a $100 a share for the company.

Berkshire Hathaway’s Class A shares are currently selling for around $102,000 each, but the rail sale will affect the company’s less pricey Class B issue, which goes for $3,300 a share.

BH’s board of directors approved an unprecedented 50 to 1 split for the stock, which means the average investor may soon have the opportunity to buy a chunk of BNSF, and a lot more, for $60 to $70 a share. Shareholders are expected to approve the plan.

Alex Huff, former president of Chamberlain-based Dakota Southern Railway and a longtime student of the industry, said the recent economic downturn idled thousands of coal, lumber and tanker cars. The fact that the industry has struggled through several years of down revenues makes it highly unlikely that prices will be lowered.

Media reports from Montana this week noted that residents there are hopeful that a shift in ownership will mean lower shipping prices.

“I don’t think there’s any reason to believe the sale will trigger a drop in freight rates,” said Huff, who added that the lack of competition in Montana means BNSF can charge what it likes. “But it’s still cheaper to ship grain today than it was 20 years ago,” he said.

Huff predicts consolidation as a likely scenario for the rail industry, with roughly four major East and West rail companies eventually morphing into two highly competitive transcontinental super-carriers. That’s down the road a bit, but that’s OK, he said.

“Warren Buffett is not a plunger,” said Huff. “He buys for the long-term.”

The Associated Press contributed to this report.

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