FARGO, N.D. -- Railroads and grain transportation have been key issues for the North Dakota Grain Dealers Association since its inception in 1923, and the organization's new top staffer expects that will continue as he takes his post during the era of Big Oil.
Stuart Letcher takes over for Steve Strege as executive vice president on June 1. He says transportation is the biggest among a handful of issues affecting elevators that farmers rely on to get their crops to market.
Strege says the latest concern about slow rail service is at a "fever pitch" but is an issue that has been "in front of us almost constantly since I've been here." He started at the organization in 1976. He says the railroads encouraged elevators to create inland terminals that can load shuttle trains, and now there are roughly 30 in the state on the Burlington Northern Santa Fe Railway and another 20 or so on Canadian Pacific Railway.
"Now these guys aren't getting the kind of service they were pledged to get," Strege says. He adds that many of the shuttle loaders, as well as smaller elevators, also ship a mix of specialty crops that will continue to need smaller lots of cars that are not in 110- or 120-car shuttle trains. He says some in the industry have asked that railroads pay penalties to the grain customers when they are late on delivering service.
Letcher says he isn't sure what the solution will be, but can't help but wonder whether competition with the oil traffic is going to lead to increased use of oil pipelines.
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On another transportation issue, Letcher and Strege say the NDGDA will need to be vigilant about updating the Mississippi River locks and dams system. Analysts note there are 200 locks on river transportation in the U.S. and 57 percent of them have exceeded their 50-year design life.
Strege notes that one project on the Mississippi was authorized in 1983 and has a completion date of 2024. Projects authorized now won't be completed until 2090.
Cost of regulation
Regulation and increased costs, including health care, are also big for the ag industry. Letcher says the industry is working with the Occupational Safety and Health Administration. The Food and Drug Administration is setting new rules to comply with the Food Safety Modernization Act of 2011.
"Right now, it looks like it's going to affect feed mills more than grain elevators," Letcher says. "But one part of it is supplier verification. If an elevator wants to ship wheat to a mill that makes flour, the mill may have to go back to the elevator and verify the supplier of that wheat. We're not sure what those regulations are going to look like."
Strege says the regulations add unexpected costs. The FDA estimated its Food Safety Modernization Act regulations would cost $128 million, but the National Grain and Feed Association later estimated it would cost more than $500 million in added labor alone.
"Maybe some of it is necessary; maybe some isn't," Strege says.
Letcher says the third major concern he has is with health costs for elevators. The association runs a Health Trust, a self-insurance program, which is going to be hit with a $155,000 charge in a Transitional Insurance Program -- a new tax this year connected to the Affordable Health Care Act. That adds about $63 per person covered.
