An analysis of the demand for rail transportation of corn, soybeans, and wheat in South Dakota

The cropping patterns, grain marketing flows, and transportation needs have changed in South Dakota as increased ethanol production has led to a significant increase in corn production and the production of distiller's dried grains with solubles (DDGS) as a co-product. Previous studies have not focused specifically on the grain and oilseed transportation needs in South Dakota over an extended period of time that covers the influence of ethanol production. Quarterly rail data from the Surface Transportation Board Public Use Waybill Sample for 1991 to 2013 were used in a regression analysis of the demand for rail transportation of corn, soybeans, and wheat in South Dakota. Crop production levels, crop prices, rail prices, lagged rail volumes, and ethanol production were considered as determinants of the rail volumes of corn, soybeans, and wheat. Instrumental variables were used to test for endogeneity bias present in the ordinary least squares estimation. Truck prices and rail shipment sizes were used to instrument for rail price in a generalized method of moments estimation of the corn model. The soybean and wheat models were corrected for autocorrelation.;The results for the corn model matched with theoretical expectations, and ethanol production was found to be positively associated with rail volumes of corn and DDGS. This result indicates that the increase in bushels of corn produced in South Dakota was enough to compensate the railroads for the volume of corn lost to ethanol plants. Not all results of the soybean and wheat models were consistent with theoretical expectations, but stocks were found to have a strong positive influence on rail volumes of soybeans, consistent with the concept that soybeans are not stored long and are exported shortly after they are harvested. Additionally, rail volumes of wheat in the previous quarter were found to have a strong positive influence on rail volumes of wheat in the current quarter, indicating momentum swings in the marketing of wheat. Differences were also found in the relationships between rail prices for each of the crops and truck prices and shipment sizes, indicating the importance of rail and truck competition and the influence of shuttle trains in South Dakota.