Agricultural Economics Department

 

Date of this Version

9-1976

Citation

SB541, The Agricultural Experiment Station Institute of Agriculture and Natural Resources, University of Nebraska - Lincoln

Comments

(c) University of Nebraska

Abstract

Some 249 miles of Nebraska rail line have been abandoned since 1963; another 310 miles are in contention at abandonment proceedings. The abandonment of these and other lines could have serious economic implications for grain elevators, farmers, and rural communities.

Track abandonment is occurring during a time of rapid expansion in the grain industry. U. S. corn and grain sorghum production increased more than 40 percent during the decade ending in 1973. Exports of these commodities increased 157 percent during the same period. Increases in grain production and exports, along with a shorter harvest season, are placing great strains on the grain marketing system.

This study assessed the impact of branch-line abandonment on country elevators and the surrounding communities. A model developed at Iowa State University was used to evaluate implications of abandonment for a six-county study area in southcentral Nebraska. The model was used to evaluate the economic feasibility of alternative grain-handling systems given existing and prospective freight rates for alternative transport modes, elevator costs for various sizes of facilities and grain prices at alternative destinations. The model was designed to determine which alternative marketing and shipping system (including potential subterminal sites for multiple-car grain shipments) would yield the greatest net returns to the six-county area.

Three rail-line options were evaluated:

I. The existing system of single-car shipments using 100 percent of the 1974 track at 1974 carrying capacities.

II. The 1974 system upgraded to accommodate multiple-car shipments of covered hopper cars at reduced freight rates.

III. Abandonment of 25 percent of existing lines with the remaining track upgraded to accommodate multiple-car hopper shipments at reduced freight rates.

Major findings of the study and their implications include:

1. Abandonment of light-density lines resulted in no great shift in grain flow patterns beyond those resulting from introduction of multiple-car rates. Country elevators on light-density lines transshipped large amounts of grain to subterminals during harvest months but were bypassed by farmers during non-harvest months under both the option to upgrade all light lines and the option to abandon these lines. The multiple-car rates were low enough to offset the higher costs of additional trucking.

2. The highest net returns to the study area were realized under Option III (track abandonment). The optimum system was one wherein seven subterminals in the area collected grain from farmers and from country elevators for outshipment in single-car lots and in 50-car covered-hopper trains. Assuming projected 1980 grain flows such a system yielded nearly $668,000 more net revenue than th~ present system. Savings resulted from reduced rail rates for unit-train shipments and lower rail line maintenance and upgrading costs resulting from abandonment of light lines. Net revenues were lowest for Option II (preserving and upgrading all lines), more than $537,000 less than for the 1974 system.

3. When rail cost estimates were substituted for rates in the analysis the results were somewhat different. Option III had an even greater lead ($1.7 million) over Option I. Option II became the second best alternative, with net returns nearly $586,000 higher than for Option I. Rail cost savings from unit-train shipments under Options II and III were greater than savings from lower trucking costs under the existing system. Cost savings from multiple-car shipments offset the high upgrading and maintenance costs borne by Option II. Multiple-car rates used in the analysis appear to be cost justified.

4. No existing elevators were forced out of business in the short run. Nor was additional storage required at country elevators or subterminal locations as a result of abandonment. Results suggested that elevators can continue to operate even in the face of branch-line' abandonment and the introduction of multiple-car rates. Elevators or abandoned track, however, might serve only as storage houses all( might be at a competitive disadvantage relative to subterminals anc country elevators located on heavy main lines, especially in the long run.

5. The optimum system required the use of only three-fourths as many rail cars as would the existing system. Only 1,374 jumbo covered hopper cars would be needed to move the projected 67 million bushels of corn and grain sorghum shipped from the area in 1980. Some 1,113 box cars and 690 jumbo hopper cars would be required under the existing system.

6. Although rail abandonment forced increased truck shipments for assembly of grain at country and subterminal elevators, tax and license revenues derived from resulting truck traffic exceeded by three to five times the additional costs resulting from road maintenance and resurfacing.

Share

COinS