The agricultural sector relies heavily on affordable energy — especially petroleum-based energy — to stay competitive. The cost of crude oil and natural gas directly impact a farmer's ability to maintain a healthy bottom line, driving the price of necessary expenditures like diesel fuel, irrigation, fertilizer and lubricants.
In addition to these direct ties, the agricultural sector — especially in the Upper Midwest — has perhaps an even stronger financial interest in the policies that determine the path forward for our nation's energy sector: shipping costs.
Over the last half decade, crude oil production in the United States, and especially in the Bakken oil fields, has skyrocketed. The boom brought with it an unmistakable surge of economic activity. North Dakota now boasts the nation's lowest unemployment rate (not to mention real estate prices that would make a Manhattanite gasp). The nation as a whole will surpass Saudi Arabia and Russia as the world's most prolific producer of fossil energy resources in 2015. And for the first time in decades, the once vaporous concept of American "energy independence" is within grasp.
But the rapid uptick in production has caused serious growing pains for the regions at or even near the heart of production. Among those growing pains is the simple fact that transportation infrastructure — especially energy pipelines — has not grown or improved with the increase in production. The lack of pipeline infrastructure has forced the region's energy producers to turn to other avenues to transport their product.
The result for farmers has not been pretty, as the increase in crude oil trains has reduced the freight capacity available to transport grain and other commodities. Without action, the future of ag shipping is uncertain and will be defined by delays, price spikes and poor access to railcars.
I recently partnered with the American Farm Bureau Federation to attempt to quantify the financial impact of regional transportation strain on farmers in the Midwest. We found that the surge in crude oil traffic — combined with other factors that reduced access to rail — caused millions of dollars of losses to farmers, elevators and end users. The United States Department of Agriculture confirms that $570 million were lost just from Upper Midwest farmers' profits during the 2014 harvest season alone. In North Dakota, the insufficient freight environment could be expected to reduce the average farmer's income by $10,000 just from one crop, relative to what could be expected in a "normal" year.
Grain producers are uniquely dependent on efficient rail systems, especially in the "hot spots" most heavily affected by the increase in crude oil traffic. Due to the nature of grain production and use, the industry is fairly inflexible with regard to the freight methods that it must use. Simply put, grain farmers must have access to efficient rail in order to manage shipping costs, minimize delay and get their products to market in an economically competitive manner.
Therefore, improvements to the regional freight capacity must come from other products. And fortunately for farmers (and for our nation's energy sector), crude oil is an ideal candidate for such improvement.
Modern pipelines servicing the Bakken region can, if approved in a timely manner, channel hundreds of thousands of barrels of crude oil per day off of the rails and roadways. That's hundreds of thousands of barrels of crude oil that don't have to move by rail, and that means hundreds of rail cars freed to move agricultural products and other commodities in a more timely, more affordable manner.
As noted in our study, crude oil is one of the only commodities capable of being moved by this cheaper, safer form of transportation, and pipelines are the one form of transportation that is best suited to expansion in the U.S. without crowding already overstressed rail terminals and highways.
There are many reasons to expand our pipeline infrastructure. As a freight alternative, pipelines are cheaper and more efficient than above-ground freight methods, because they have no weather-related delays, or congestion caused by multiple categories of commodities all trying to crowd through one route. If grain shippers or lumber shippers or scrap metal shippers were physically able to send their products through a pipeline, they would be delighted to do so.
Comprehensive improvements to the freight network in the Upper Midwest are needed. And indeed, rail carriers have responded well to the recent breakdown in service, devoting ample resources and energy to improving capacity and reducing delay. But in order to make the most of our newfound energy resources without compromising the competitiveness of the economically and culturally vital agricultural sector, transportation infrastructure devoted to energy is essential.
Elaine Kub is the author of Mastering the Grain Markets: How Profits Are Really Made -- a 360-degree look at all aspects of grain trading, which draws on her experiences as a futures broker, market analyst, grain merchandiser and farmer. She grew up on a family farm in South Dakota and holds an engineering degree and an MBA. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.