Farmers complain about BNSF rates to STB

[MichaelSol]

QUOTE: Originally posted by MP173
I am very interested in the economics of the Montana wheat farmers, so I am really looking forward to your answers to the questions I posed.

Well, I am tied up in an Employment and Labor Law seminar all weekend. Sort of like 16 hours of continuous dental surgery. However, the General Counsel of WalMart actually knew all about the Pullman Strike of 1888, which was both remarkable and generated an interesting discussion last night -- for the two of us in the room who knew what it was at all.

Sunday afternoon, I might be able to gather something together on economic trends of wheat shipping, wheat prices, and farm values, if the right box of stuff is in the right place where I can find it.

Best regards, Michael Sol

[gabe]

You guys know how to make me feel like I have not missed anything. I had to get away from the forum, and three months later, there is a carbon copy of the thread I was reading three months ago.

Gabe

[MP173]

Michael:

I can go and find tariff rates with anyone. The disagreement we got into last time was that the rates I was finding were not pertenent to the traffic movements.

I simply want to know this...what does a car of wheat cost, how many bushels in a car (I despite an MBA can then do the math to determine bushel cost) and then look at the cost of wheat and figure what the transportation costs are.

Anytime someone does analysis, it is always good to take a historical perspective. Hence the historical commodity prices. I also think it would be a good idea to take a look at typical farm size, etc.

I have a very good understanding of Illinois corn, beans, wheat farming but realize there is a difference.

FM, dont get too upset by what I want, it is pretty simple actually.

ed

[MichaelSol]

Well, this is pasted from an Excel Spreadsheet, but if you place these back into EXcel and then graph these, you will see that Montana and North Dakota wheat is one the few railroad items which has increased in shipping costs under Staggers, rather than benefitted from the huge drop in cost per ton-mile enjoyed by most other rail shippers, even as the price of wheat at Great Falls has stayed below $3.50 per bushel and even as operating costs are 375% higher in 2005 than they were in 1975.

National Average 0.063 0.039 0.0295 0.024
MT Cost to ship/ton-mile 0.023 0.028 0.034 0.038
Cost to ship/carload 1800 2268 2736 3066
Distance 870 870 870 870
Price of wheat 2.67 3.47 2.74 3.31
1975 1985 1995 2005

Best regards, Michael Sol

[MichaelSol]

Ed, a 100 Ton hopper car holds approximately 3450-3500 bushels of wheat.

Montana has been remarkably stable on some statistical farm criteria for the past thirty years., not so stable on others.

This first category is relevant to Bob Wilcox's misleading comment:

QUOTE: Small farmers virtually died twenty years ago after the credit crunch in the early 1980s. They are usefull when agri-business is after a political payoff such as a subsidy from the local evil railroad.

As you can see below, nothing of the sort happened as a result of the "credit crunch" of the early 1980s, indeed, farms did not consolidate and get larger, they got smaller. There are more farms in 2005 than there were in 1974.

The number of acres of farmland in Montana:
1974 [Average size of farm]
62,158,351 [2,665 acres]

1982
60,539,209 [2,618 acres]

1992
59,642,536 [2,613 acres]

2002
59,612,403 [2,139 acres]

Wheat crop yield per acre
1974 [Aver. price per bushel]
24.7 bu [$4.24]

1982
33.6 bu [$3.55]

1990
28.1 bu [$2.65]

1991
36.5 bu $3.17]

2000
27.5 bu [$3.02]

2004
34.5 bu [$3.61]

Market value of products sold
1974 (adjusted for 1974 dollars)
$1.03 Billion

1982
$1.6 Billion ($780 million)

1992
$1.7 Billion ($550 million)

2002
$1.8 Billion ($460 million)

Average age of operator
1974
51.1 years

1982
50.5 years

1992
54.0 years

2002
55.4 years

Source: National Agricultural Statistics Service, USDA.

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by MP173

I simply want to know this...what does a car of wheat cost, how many bushels in a car (I despite an MBA can then do the math to determine bushel cost) and then look at the cost of wheat and figure what the transportation costs are.

Ed, I can email you an Excel BNSF Pricing Model that will calculate for you the specific carload cost, across four pricing categories, and the "per train" revenue as well as the transportation cost, as well as automatically selecting the best Port Export destination based on the port wheat price and the specific transportation cost, from virtually any elevator on the BNSF system, all in one Excel model. It is currently loaded with the April 15, 2005 tariffs as I haven't had time to update it to the current tariffs, but it calculates total cost and carload cost, as well as rate per mile automatically for any elevator location.

If you wish, I can ship it off to you by email.

Best regards, Michael Sol

[MP173]

Michael:

Thanks for the info. Any idea of what a typical acre of land is worth? It will be interesting to plug the numbers in and compare to farms in this area.

Sure, send me the excel spreadsheet. I will play with it.

ed

[MichaelSol]

QUOTE: Originally posted by MP173

Thanks for the info. Any idea of what a typical acre of land is worth? It will be interesting to plug the numbers in and compare to farms in this area.

According to the USDA, as of 2002, the "estimated market value of land and buildings" for Montana farmland is $386.00 per acre. The average for Illinois is $2,425.00 per acre.

Best regards, Michael Sol

[greyhounds]

QUOTE: Originally posted by MichaelSol

Well, this is pasted from an Excel Spreadsheet, but if you place these back into EXcel and then graph these, you will see that Montana and North Dakota wheat is one the few railroad items which has increased in shipping costs under Staggers, rather than benefitted from the huge drop in cost per ton-mile enjoyed by most other rail shippers, even as the price of wheat at Great Falls has stayed below $3.50 per bushel and even as operating costs are 375% higher in 2005 than they were in 1975.

National Average 0.063 0.039 0.0295 0.024
MT Cost to ship/ton-mile 0.023 0.028 0.034 0.038
Cost to ship/carload 1800 2268 2736 3066
Distance 870 870 870 870
Price of wheat 2.67 3.47 2.74 3.31
1975 1985 1995 2005

Best regards, Michael Sol

Are those costs adjusted for inflation?

[Anonymous]

QUOTE: Originally posted by futuremodal

Yep, just post something about railroad rate gouging, and the ilks will slither up from the cesspool of arrogant idiocy.

I didn't know your home had such an interesting and fitting name FM...FOFLMAO...

I missed a few things while turning and burning I guess...

LC

[MP173]

So a Montana acre in 2004 produced $124.55 in revenue. That acre is worth $386 per acre, so the revenue per acre/asset value per acre ratio is .32.

The Illinois farm valued at $2425 produces about $350 (based on 175 bushels of corn @ $2) for a ratio of .14.

The typical Montana farm generated $266,412 in revenue in 2004, much higher than I would have thought. The farm would have been valued in excess of $800,000.

Interesting numbers. Anything else farmed on those acres, or just wheat? Down here we have corn, beans, and wheat on a rotation.

ed

[jeaton]

The situation faced by the Montana farmers kind of reminds me of something of my past. Just after World War II, my father bought a small dairy farm in north central Wisconsin. We were typical of the size of the farms in the area. My father quit farming in 1959 and in the following decade or so most of the other farmers in the area also got out of the business.

The problem was the land was not too great, the growing season was fairly short, and the primary markets for the products were far away. Something like Montana.

[MichaelSol]

QUOTE: Originally posted by MP173

So a Montana acre in 2004 produced $124.55 in revenue. That acre is worth $386 per acre, so the revenue per acre/asset value per acre ratio is .32.

The Illinois farm valued at $2425 produces about $350 (based on 175 bushels of corn @ $2) for a ratio of .14.

The typical Montana farm generated $266,412 in revenue in 2004, much higher than I would have thought. The farm would have been valued in excess of $800,000.

Take that one step farther and you're on to something.

After expenses, including transportation, the average Illinois farm according to the USDA earns $148 net income per acre and the the average Montana farm earns $12 per acre, net revenue. Among other things, you can see the effect of the railroad cost penalty, roughly $44/acre in this instance, it's extremely significant, and I think that's the point where that cost is $14 to $20 higher per acre than anywhere else on the railroad for the identical commodity a similar distance shipped.

QUOTE: The problem was the land was not too great, the growing season was fairly short, and the primary markets for the products were far away. Something like Montana.

For wheat, this is backwards. Montana is the nearest and largest wheat producer in the nation to what is historically the single largest export port, offering historically the highest wheat prices: Portland, Oregon.

The growing season in Montana is considered ideal for wheat, which is why so much of it is grown in Montana and it is considered the highest quality of American wheat. None of that does Montana growers much good thanks to the BNSF.

In an economically rational world, Montana is ideally located to its primary market and should be enjoying a higher prosperity because of that compared to other wheat farmers. The opposite is true, entirely because of railroad pricing policy.

The problem is that, although the closest large producer to the largest and best market offering the highest prices, Montana pays the highest percentage of income earned for transportation of that product. As recently as 2003, BNSF engaged in the insidious practice of "inverse pricing." It cost more to ship a carload of wheat to Portland from Montana than it did a carload of wheat from Minnesota to Portland.

I don't mean "per mile," I don't mean "per ton mile," I mean that it was cheaper absolutely to ship the carload from Minnesota than it was from Montana even though on the same railroad on the same mainline, and even though it was more than twice the distance.

Minnesota wheat flooded into Portland. The price of wheat collapsed. Montana farmers paid more to get their wheat there, even though 1000 miles closer, and received less per bushel thanks to BNSF's pricing policy.

The wheat producers who were located the farthest from the market, offering a poorer quality wheat, got the better profit, entirely because of railroad policy.

And the railroad car cycle times collapsed, the COT system fell apart, overall congestion increased, all traffic encountered increased cycle times, and the railroad earned substantially less than it would have under a straightforward and fair set of rates. Who wudda thought that fair and rational pricing would have been more profitable to the railroad.

Not the railroad.

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by jeaton
The problem was the land was not too great, the growing season was fairly short, and the primary markets for the products were far away. Something like Montana.

During the "settlement" era, these were the statistics available and used by the railroads, MILW, GN and NP, to promote settlement in Montana.

Average bushel per acre production of some Midwestern states and Montana from 1900 to 1910 (Wheat)

State/ Average Bushel Production
North Dakota 12.1
South Dakota 12.1
Nebraska 17.5
Kansas 14.0
Wisconsin 16.6
Minnesota 13.0
Iowa 14.0
Montana 26.3

Source: The United States Department of Agriculture, Yearbook of Agriculture, Washington: Government Printing Office, 1911, p.532.

Best regards, Michael Sol

[Anonymous]

QUOTE: Originally posted by MichaelSol

The wheat producers who were located the farthest from the market, offering a poorer quality wheat, got the better profit, entirely because of railroad policy.

This is actually a big problem for our global wheat marketers. What is getting out there the most is a relatively inferior product compared to what could be representing US wheat quality. If Montana wheat has the top characteristics of grain quality, it should be the product prioritized for transportation to overseas markets. But the U.S. railroads have skewed this market to the detriment of U.S. producers and to the benefit of foreign producers.

[greyhounds]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by jeaton
The problem was the land was not too great, the growing season was fairly short, and the primary markets for the products were far away. Something like Montana.

During the "settlement" era, these were the statistics available and used by the railroads, MILW, GN and NP, to promote settlement in Montana.

Average bushel per acre production of some Midwestern states and Montana from 1900 to 1910 (Wheat)

State/ Average Bushel Production
North Dakota 12.1
South Dakota 12.1
Nebraska 17.5
Kansas 14.0
Wisconsin 16.6
Minnesota 13.0
Iowa 14.0
Montana 26.3

Source: The United States Department of Agriculture, Yearbook of Agriculture, Washington: Government Printing Office, 1911, p.532.

Best regards, Michael Sol

Statistics from 1910 mean absolutly nothing in 2005.

Statistics without context are a good lawyer's trick. For example, if they were only farming the best Montana land in 1910 while farming most of the land in Kansas the "average" yield per acre in Montana would be more.

We don't know because the man don't say. They evidently were trying to get people to move to Montana and start farming. It's reasonable to conclude that the best land would have been brought under cultivation first so any expansion of farming would have brought the "average" yield down. It's a political agenda and we ain't gonna' hear all the facts from someone with a political agenda.

I personally think they should stop raising wheat in Montana. Switch to grapes. They sure make a good whine out there. A good Montana Merlot with Colorado lamb? I'd try it.

[MichaelSol]

QUOTE: Originally posted by greyhounds
They evidently were trying to get people to move to Montana and start farming.

Yeah .. "evidently" railroads were trying to get people to move to Montana and start farming.

You're getting warm. Keep working on it.

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by greyhounds
It's reasonable to conclude that the best land would have been brought under cultivation first so any expansion of farming would have brought the "average" yield down.

1910 26.3 bushels
2004 34.5 bushels

As to the average going down, keep working on your math as well. It also needs work.

Best regards, Michael Sol

[arbfbe]

Perhaps Montana growers should ship their grains to Gulf Coast ports. If BNSF's price structure holds in the reverse direction they should get the cheapest costs since they are the farthest away from that market. <<G>>

[greyhounds]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by greyhounds
It's reasonable to conclude that the best land would have been brought under cultivation first so any expansion of farming would have brought the "average" yield down.

1910 26.3 bushels
2004 34.5 bushels

As to the average going down, keep working on your math as well. It also needs work.

Best regards, Michael Sol

Oh, my math is fine, I could use some work on spelling, but my math is fine.

If they've only increased the yeild by 8.2 (did I get that right?) bushels per acre since 1910 they must be farming some pretty poor land. The big revolution in farming has been education. Two out of three farmers I know (and I know three farmers) have degrees from the University of Illinois. One in Ag and one in Ag economics.

They're much better equiped to get productivity out of they land than the farm folks were in 1910. But they can't work with nothing. And I'm telling you, by the market valuation, by the amount of subsidies going to the farmers, and by the amount of blaming someone else so you don't have to blame yourself, Montana farm land seems to be close to nothing.

It's a crying shame, but you can't expect the BNSF to take it in the shorts because farmers can't make a decent living raising wheat in Montana. From what I've read here, the BNSF could haul that wheat for free and those farmers would still need to take confiscated money (a subsidy) from the rest of us.

Guys, it's time to move on.

[MichaelSol]

Let's see. If the average goes up 8.2%, that's the same as "going down." In other words, you had no idea what you were talking about, it was clear, so you changed the subject.

It has long been clear that ag is not an industry you know anythiing about. Your math on rail cars was bad enough -- five loose cars a day will make "hot trains run late." But, this is so obviously outside your experience, I'm not sure why you insist on commenting. Actually, I've wondered that on several threads. You have lots of opinon, few facts, and almost no analytical sense.

The above is a good example. In Montana, 2004 was a severe drought year. Think that might affect yield? You wouldn't know.

QUOTE: Greyhounds:
If they've only increased the yeild by 8.2 (did I get that right?) bushels per acre since 1910 they must be farming some pretty poor land. The big revolution in farming has been education. Two out of three farmers I know (and I know three farmers) have degrees from the University of Illinois. One in Ag and one in Ag economics.

Did they teach them that wheat plants don't need water? Of course drought impacts yield considerably. Is that any more significant than concluding that farmers shouldn't raise wheat in Wisconsin, because it has had severe droughts, or Texas, because it has had severe droughts, or Kansas, because it has had severe droughts?

Of course not. It is a conclusion only you can make, because of what appears to be nearly complete ignorance on the topic.

The point of the comment was simply to show that as agriculture expanded to the allegedly poorer soils, average overall yield did not decline for a variety of factors during that entire time, including planting improvements, fertilizer improvements, harvesting improvements, plant improvements, a variety of things, and affected by things like soil depletion and weather.

Now you are able to conclude from that that Montana, the third largest wheat producer in the nation, producing the highest quality wheat, shouldn't be in the business at all because of wheat yields in 2004.

Considering that in 1918, similar conditions in Montana resulted in yields of 2.4 acres per bushel, these modern Montana farmers are a pretty dedicated and innovative bunch.

The one thing they can't beat is discriminatory railroad rates.

Fortunately, no one put you in charge, as no one would be raising anything anywhere, ultimately, by your bizarre economic theories.

A little more math. Take the differential of the average rate charged for the distance, and add that back to the average Montana farmer's net income, given the size differential of the farms Compare that to Illinois as the above example.

The average Illinois farm earns $105,000. The average Montana farm earns $67,000. However, if the average Montana farmer paid the same transportation rates available to the Illinois farmer, the average Montana farmer would earn between $97,000 and $109,000.

In other words, outside of transportation rates, Montana farms are of the nearly identical economic productivity as Illinois farms.

Amazing, right?

And they are a more than a third less profitable, entirely because of the higher rates charged for the identical service, even though they produce a superior product more accessible to the better markets.

Now, as they are less profitable, they have less to invest. Ultimately, they will be less productive. Who will be hauling less product as a result?

The railroad.

This strategy, as all economic strategies are, subject to certain laws of economics.

By strangling an industry, the railroad is strangling its own customers. Besides running the risk of political backlash, does that make good sense in the long run for the railroad?

That makes sense only to you and Bob Wilcox.

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by greyhounds
And I'm telling you, by the market valuation, by the amount of subsidies going to the farmers, and by the amount of blaming someone else so you don't have to blame yourself, Montana farm land seems to be close to nothing.

From what I've read here, the BNSF could haul that wheat for free and those farmers would still need to take confiscated money (a subsidy) from the rest of us.

Hmmm, and since Montana is the third largest wheat grower, pays the highest shipping costs in the nation, but is 16th in the nation in terms of farm subsidies, your comments on Montana mean ... what?

Don't you think its a little odd that those Illinois farmers get three times the subsidy as Montana farmers? Tell me more about "political agendas" and how BNSF is "taking it in the shorts" by charging higher prices to Montana farmers, but not "taking it in the shorts" when it is charging substantially lower prices to those Illinois farmers who already enjoy three times the subsidy?

Rank --------- State --------- Amount -------- Percentage
1. Texas ----- $12,899,984,867 ---- 9.0%
2 Iowa -----$12,541,321,124 ----- 8.7%
3 Illinois ----- $10,664,346,498 ----- 7.4%
4 Nebraska ------ $8,274,584,703 ----- 5.8%
5 Minnesota ----- $8,210,073,011 ------ 5.7%
6 Kansas -------- $7,992,519,474 ------ 5.6%
7 Arkansas ----- $6,705,286,472 -------4.7%
8 North Dakota ------- $6,247,445,370 ------ 4.3%
9 California ------ $5,301,039,851 ------- 3.7%
10 Indiana --------$5,215,455,705 -------- 3.6%
11 Missouri -------- $5,042,768,281 ------- 3.5%
12 South Dakota -------- $4,769,310,834 -------- 3.3%
13 Mississippi ------- $4,689,361,125 ------ 3.3%
14 Ohio ------- $3,847,882,164 -------- 2.7%
15 Wisconsin -------- $3,393,811,536 ------- 2.4%
16 Montana ---------$3,373,915,141 ------- 2.3%
17 Georgia --------- $3,173,828,694 ------- 2.2%
18 Oklahoma --------- $3,155,045,835 ----- 2.2%
19 Louisiana -------- $3,061,631,253 ------- 2.1%
20 Colorado --------- $2,576,802,008 -------- 1.8%

Best regards, Michael Sol

[MP173]

Michael:

How do you figure the Illinois farmer gets three times the subsidy as the Montana farmer? It appears your figures are based on aggregate subsidies.

How are the subsidies based? Acreage? I dont know...I get the checks, but I dont know. Call me apathetic if you will, but the checks are so small that I have never stopped to determine them.

Regarding transporation costs...what is the average haul (mileage) for Illinois farmers vs Montana? Lots of Illinois corn and soybeans are locally used (ADM and others). Decatur, Il is very centrally located and processes quite a bit of corn and beans. I know some corn goes for export, but it would be interesting to see the average length of haul. With you resources...I am sure you will come up with it.

With the ethonol plants going up on every block, there is a stronger demand for corn and the length of haul should be pretty short.

I maintained back in the original thread months ago that part of the problem with Montana and Dakota wheat is the length of haul and the need to add value to their product. Both are high hurdles to jump.

ed

[greyhounds]

QUOTE: Originally posted by MichaelSol

Let's see. If the average goes up 8.2%, that's the same as "going down." In other words, you had no idea what you were talking about, it was clear, so you changed the subject.

It has long been clear that ag is not an industry you know anythiing about. Your math on rail cars was bad enough -- five loose cars a day will make "hot trains run late." But, this is so obviously outside your experience, I'm not sure why you insist on commenting. Actually, I've wondered that on several threads.

Well, let's just conceed, for the sake of argument, that I'm a complete moron. After all, I disagree with you What further proof does anyone need. And furthermore, I can't do math at all.

But I am not so complete a moron as to falsely claim, as you do, that an 8.2 bushel per acre increase in Montana wheat production per acre from 1910 to 2004 is a "8.2% increase. "

The statistics you cited said the average acre of wheat in Montana yeilded 26.3 bushels in 1910 while the 2004 yeild was 34.5 bushels. That's a 8.2 bushel increase. That's pathetic considering the impovements in farming since 1910. It's only a 31% increase. Again, that's a pathetic increase in farm productivity since 1910.

But again, you misrepresent the numbers - falsely calling it to be an "8.2 %" increase.

Look, a 8.2 bushel per acre increase is not an "8.2 percent" increase as you claim.

And yet, you criticize MY math.

You use numbers without understanding the numbers. I deal with people like you every *** day. You folks cause a lot of useless trouble.

[MichaelSol]

QUOTE: Originally posted by MP173
I maintained back in the original thread months ago that part of the problem with Montana and Dakota wheat is the length of haul and the need to add value to their product. Both are high hurdles to jump.

And three months ago I pointed out in excrutiating detail that Montana/North Dakota rates are 130-150% higher FOR THE SAME DISTANCE shipped by nearly any other wheat grower in the country.

The length of haul of wheat, Montana/Portland, is a relatively short haul by railroad standards, averaging 780 miles. The overall system line haul is something around 1200 miles on BNSF. The Montana distance is 65% of the average line haul distance for all traffic on the BNSF; that does not support an argument that Montana wheat is somehow handicapped by distance.

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by greyhounds
[But again, you misrepresent the numbers - falsely calling it to be an "8.2 %" increase.

Look, a 8.2 bushel per acre increase is not an "8.2 percent" increase as you claim.

And yet, you criticize MY math.

You use numbers without understanding the numbers. I deal with people like you every *** day. You folks cause a lot of useless trouble.

Unlike you, I am responsible to clients and customers for my numbers and have been for 35 years, and especially so when I was in engineering. The 8.2% is an obvious typo, replace % with "bu", and I am sure that it will jump right out at you Neither of which has anything to do with the math, but of course which does have a lot to do with the fact that both represented increases, which is the opposite of what you claimed.

By the way I am sure you can see the difference -- an error of labelling which oddly enough has nothing to do with the math involved. I guess you got that wrong too.

"You folks cause a lot of trouble".

When you feel strongly and know little, it of no doubt great trouble to you. People like you are everywhere: all opinion, no facts.

This thread is typical: not one fact, not one useful idea, not one shred of evidence that you have anything to offer on this topic.

But, here you are. And the thread goes downhill.

Again.

Best regards, Michael Sol

[MP173]

Oh, I am not disputing the fact that the Montana rates are higher than others. We have discussed that.

What is the average length of haul for Montana wheat vs say...Illinois corn? What percentage of Montana wheat that goes the distance to the Pacific? What percentage of the Minnesota wheat goes the distance vs what is process locally?

Those are fairly important figures to know when looking at the entire picture.

Without competition in the form of other railroads, water, or a method of adding value to the product it is tough situation. The obvious answer, if one cannot lower costs is to increase revenue and how that is done in a commodity market is based entirely on supply and demand. So, somehow either increase demand, lower supply or add value to the product. None of which is easy.

ed

[MichaelSol]

QUOTE: Originally posted by MP173
How do you figure the Illinois farmer gets three times the subsidy as the Montana farmer? It appears your figures are based on aggregate subsidies.

Well, I referred to "Illinois farmers," and "Montana farmers" attempting to assert that the farming community, industry, however one wishes to label it, receives the stated amounts, and that this was on a statewide basis.

The figures are aggregate. On a "per farmed acre" basis, Illinois receives $391 per acre in farm subsidies, and Montana receives $57 per acre. On that basis, Illinois farmers receive approximately Seven times the subsidy per acre farmed as Montana farmers.

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by greyhounds
The statistics you cited said the average acre of wheat in Montana yeilded 26.3 bushels in 1910 while the 2004 yeild was 34.5 bushels. That's a 8.2 bushel increase. That's pathetic considering the impovements in farming since 1910. It's only a 31% increase. Again, that's a pathetic increase in farm productivity since 1910.

You are repeating yourself. Let me repeat myself.

In Montana, the year 1910 was a year of abundant rainfall. As I pointed out, railroad literature was distributed far and wide proclaiming the superior fertility and productivity of Montana soils. The railroads could not have survived out West but for the farmers; there wasn't intermodal, not enough chemical, industrial, and forest combined to support the railroads the way the farmers did.

The farmers came West, they planted, and they shipped. They made the railroads possible.

And 1910 was a very good year for rainfall.

The Year 2004 was classified by USDA as "severe to extreme" drought in Montana.

It is clear from your above statement that you don't get the connection between rainfall and crop productivity. It is to farming what the track is to the train in railroading.

Best regards, Michael Sol

[MP173]

Ok, here we go. Time to analyze a few points made here. BTW, I am using numbers provided by Michael, I must assume his sources are good.

1. Based on statements made, the average Montana farm net income is $67,000 per year. Also, the average Montana farm is 2139 acres. Thus, the average net income per year would be $31 per acre, not $12 per acre, as stated.

2. As of 2003 BNSF engaged in "inverse pricing". I must assume that since the term "as recently as 2003..." that the inverse pricing is not a current issue, nor was it in 2004.

3. Michael, you indicated there was a $44 per acre penalty for Montana farmers due solely to BNSF pricing. Check again. I am going to use your figures. It appears that the average yield is between 28 to 34 bushels per acre. So, lets use 31 bu/acre. Average farm is 2139 acres. Thus we have:

Average farm produces 66309 bushels of wheat per year.
2005 price per bushel = $3.31
Average revenue per farm = $219482
Average net income per farm = 67,000
Thus expenses = 152482

Average carload (870miles = $3066
Capacity = 3450 per car
Cost per bushel = 89 cents per bushel

Are you with me so far? Thought so...pretty simple math.

Montana cost per tonmile = .038
National average per ton mile = .024
Thus National average = 63% of what Montana pays per ton mile.

If we take the 63% of $3066, we will find the cost Montana would pay, if it paid the national average per ton mile for a carload of wheat.

That number = $1931 per car
per bu (1931/3450) = 56 cents per bushel

Thus, it could be said, when looking at the 89 cents vs 56 cents that Montana pays 33 cents per bushel more for transportation, which multiplied by 31 bushels per acre = $10.23 per acre

Thus, the "penalty" per acre is $10.23, not $44 per acre as you indicated.

The net income for the Montana farmer would increase by $21,881 per year based on .33 per bushel * 31 bu/acre * 2139 ave acre/per. The net would go from $67,000 to $88,881 not the $97,000 to $109,000 you stated.

There are flaws in my logic. I doubt if Montana would receive the "national average" of .024 per ton mile. I dont know what the rate is for agricultural products moving 870 miles.

Regarding subsidies....I dont have a comment on that. Far too complex for me to get into at this point in time. I dont know how the subsidies are determined, nor how they are paid. No comment.

In looking at the raw numbers, a couple of things jump out:

Average Illinois revenue per acre:
160 bushel corn @ $2 per acre = $320.00 per acre
Montana revenue per acre:
31 bushel wheat @ $3.31 = $105.00 per acre

I think you need to work on both the revenue side and the cost side. However, the acreage is simply not producing enough revenue per acre.

If, as you say, the Montana wheat is superior to all other wheat, it should be commanding a premium on the market, even as a commodity.

Enough for now.

ed