The CEO of the National Grain and Feed Association (NGFA) says the conflict in Iran is impacting transportation costs throughout the supply chain. Mike Seyfert says higher diesel prices are impacting how grain moves to market.
“We’re seeing premiums on vessels of about a million and a half dollars or 50 cents a bushel,” he says. “For trucking, every dollar increase in diesel is about $20 per 100-mile trip, or about two cents a bushel. On the rail side, a lot of those surcharges may not begin to kick in until May.”
According to AAA, diesel prices have risen more than 30 percent since the start of the conflict in Iran. Frayne Olson with North Dakota State University says the conflict is also adding another layer of uncertainty for local grain elevators.
“They’re making assumptions about what the cost of transportation is going to be from their local facility to that export facility,” he says. “Changes in the fuel service charge can actually eliminate any kind of profit margin they have on the transaction.”
Seyfert says diesel prices are expected to continue to rise the longer the Strait of Hormuz is shut down.
EDITOR’S TAKE:
We simply don’t know how long the Strait of Hormuz will be closed. Therefore, we won’t know how high diesel and gas prices will rise. Experts predict that once the Strait is reopened, prices will return to “normal” very quickly. Unfortunately, the longer it is closed the more disruptive it will be to our economy. Markets do not like uncertainty and this situation is a huge uncertainty. Will the increased shipping costs for grain be passed on to consumers? Only time will tell. Obviously, there’s a limit to how much grain elevators and transporters can or are willing to absorb.
What can you do to help? Special promotions from your parts and service departments might be one place to look. Or, what about a one-time dealer rebate of say $100 or more for your ag customers to help offset increased fertilizer and diesel costs? Now is a good time to be innovative and see what you and your team can come up with. Every little bit helps….
