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Fuel surcharges applied by railroads to grain shipments in the United States have more than doubled over the past year, impacting the entire agricultural region and raising transportation costs at a time when many farmers are also facing higher production costs.
The average fuel surcharge rate on grain shipments rose to 48 cents per mile per railcar during the second week of September, representing a 153% increase compared to the weighted average of the previous year, according to data from the United States Department of Agriculture (USDA).
Railroads use surcharges to recover most of what they pay for fuel and combine them with long-haul freight rates.
As per-mile rates increased, surcharges accounted for 11% of total rail transportation costs for corn and soybean shipments, compared to 5% a year ago, according to the USDA's September 10 report.
The timing is especially difficult for farmers, just as corn and soybean harvests begin. As the U.S. conflict with Iran drives up crude oil and derivative prices, diesel fuel surcharges are taking an increasingly larger share of grain shipping costs, just as transportation demand increases.
Whenever railroads pass on excess costs to shippers (such as the elevators and storage facilities that buy from farmers and ship grain by rail), growers often experience a weakening in the basis (the difference between the local and market price), meaning they receive a lower price when selling their crops.
Gary Millershaski, a wheat and sorghum farmer in Kansas and president of U.S. Wheat Associates (an export promotion group), said the basis at his local elevator was about 70 cents per bushel below Kansas hard wheat futures on the Chicago Board of Trade, when it is normally closer to 40 cents below.
"We don't even like to look at it, because it just makes you miserable," Millershaski said.
Brent crude futures surpassed $104 per barrel last week, reaching their highest level since mid-May due to concerns about the escalating conflict with Iran.
The price of diesel, the fuel burned by locomotives, is at an all-time high above $6 per gallon.
"What's causing real fits and desperation is how quickly fuel prices are changing," said Frayne Olson, an agricultural economics expert at North Dakota State University.
"When you think about an industry where your profit margin is just a couple of cents per bushel, that makes a big difference," he added.
Many corn, soybean, and wheat growers do not have access to inland waterways and rely on railroads to move their crops long distances to processing plants, export terminals, and livestock feeding operations, Olson explained.
"They are all quick to raise fuel surcharges and very, very slow to lower them. It just gives them an excuse to raise freight rates, which further exacerbates the problem we already have," said Steve Compton, a Kansas farmer.
Fuel surcharges are collected on top of long-haul freight rates by railroad companies BNSF, CSX, Norfolk Southern, Canadian National, Canadian Pacific Kansas City, and Union Pacific.
For railroads, surcharges are designed to respond to fluctuating fuel prices while reducing their exposure to them, according to a Canadian Pacific spokesperson.
Surcharges are linked to the U.S. On-Highway Diesel Fuel Index, which has risen nearly 60% year-over-year, and are activated when the cost of fuel reaches or exceeds a benchmark price, typically ranging from $2.30 to $3.25 per gallon. The surcharge increases as the index rises.
Railroads collected $2.93 billion in fuel surcharges during the second quarter, an increase of more than 90% compared to the same period last year, according to the Surface Transportation Board (STB), the industry's regulatory body. This covered approximately 90% of their diesel costs.
Surcharges "ensure that rates remain equitable and reflect current operating costs," said a Canadian National spokesperson.
Rail industry analysts expect surcharges to remain high for the rest of the year.
Archer-Daniels-Midland and other large shippers have not reported negative impacts from these surcharges, according to their most recent financial reports. These companies can pass on some of the cost, and last month ADM raised the upper end of its 2026 earnings forecast by 10%, as rising oil prices increased corn-derived ethanol margins.
Grain elevators and storage facilities, owned by companies like ADM and the private company Cargill, incorporate freight and fuel surcharges into their spot prices, which sometimes reduces the prices farmers receive for their grain.
During periods of strong export demand, transportation costs shift and can be passed on to buyers in key markets like China, Olson explained.
Transportation costs could become a bigger issue if Union Pacific acquires Norfolk Southern, a deal that, according to shippers and railroads, would streamline cargo movement and improve service.
Agricultural groups are concerned that the merger would harm the spot price of grain. "If you combine two large railroads, that market power will only increase," said Daniel Munch, an economist at the American Farm Bureau Federation, the leading agricultural lobbying group in the United States.
Attorneys general from major grain-producing states agree with this view.
"There is no reason to create a rail giant that will extract more money from farmers, shippers, and ultimately consumers in our states and across the country," officials from Iowa, Kansas, Montana, and other states wrote in an August 11 letter to the STB.