Railroad fuel surcharges push grain shipping costs to record levels

Fuel surcharges on U.S. grain shipments have surged to record levels this harvest season, adding pressure on farmers already contending with rising production costs across the farm belt.

Government data released on September 10 shows the average fuel surcharge on grain shipments reached 48 cents a mile per rail car in the second week of September, a jump of 153 percent from the weighted average recorded a year earlier. Railroads apply these surcharges on top of long haul freight tariffs to recover most of what they spend on fuel. As per mile rates have climbed, surcharges now make up 11 percent of total rail transportation costs for moving corn and soybeans, compared with just 5 percent a year ago, according to the U.S. Department of Agriculture.

The spike lands at a particularly difficult moment, since corn and soybean harvests are only just getting underway. Crude oil and refined fuel prices have jumped sharply as the war between the United States and Iran continues, pushing diesel surcharges into a larger share of grain shipping bills right as demand for rail transport picks up. When railroads shift these added costs onto shippers such as grain elevators, farmers typically absorb the impact through a weaker basis, meaning they end up receiving a lower price for the crops they sell.

Gary Millershaski, a wheat and sorghum farmer in Kansas who chairs the export group U.S. Wheat Associates, said the basis at his local grain elevator has widened to roughly 70 cents per bushel below Chicago Board of Trade Kansas City hard wheat futures, compared with a more typical gap of around 40 cents. He said the numbers are difficult even to look at because of how much they cut into returns.

Brent crude climbed above 104 dollars a barrel last week, its highest level since mid May, as the conflict with Iran continues to escalate. Diesel fuel, which powers the locomotives hauling grain across the country, has hit a record above 6 dollars a gallon. Frayne Olson, a crop economics expert at North Dakota State University, said the speed at which fuel prices are moving has caused serious strain across the industry, noting that in a business where profit margins often run to just a couple of cents per bushel, these shifts make a real difference. Olson added that many corn, soybean and wheat growers have no access to inland waterways and depend on rail to move crops long distances to processors, export terminals and livestock operations.

Kansas farmer Steve Compton said railroads move quickly to raise fuel surcharges but are far slower to lower them again, which he said effectively gives carriers an excuse to push freight rates higher and worsens an already difficult situation for growers. The surcharges apply across major freight railroads including BNSF, CSX, Norfolk Southern, Canadian National, Canadian Pacific Kansas City and Union Pacific. CSX and Norfolk Southern did not respond to requests for comment, while BNSF and Union Pacific declined to comment.

Railroads defend the surcharge system as a way to respond to swings in fuel prices while limiting their own exposure to them, according to a Canadian Pacific spokesperson. The charges track the U.S. On Highway Diesel Fuel Index, which has risen about 60 percent over the past year, and kick in once fuel costs reach a strike price generally set between 2.30 and 3.25 dollars a gallon, escalating further as the index climbs. Railroads collected 2.93 billion dollars in fuel surcharges during the second quarter, more than double the total from the same period a year earlier, according to the Surface Transportation Board, the industry regulator. That amount covered roughly 90 percent of the railroads’ diesel costs. A Canadian National spokesperson said the surcharges help keep rates fair and reflective of current operating costs, and rail analysts expect the charges to stay elevated through the rest of the year.

Major grain shippers have so far avoided reporting damage from the higher surcharges. Archer Daniels Midland, one of the largest grain handlers, actually raised the top end of its 2026 profit forecast by 10 percent last month, helped by rising oil prices that boosted margins on corn based ethanol. Grain elevators owned by companies such as ADM and privately held Cargill fold freight and fuel surcharges into the cash prices they offer farmers, often lowering what growers receive. Neither company responded to requests for comment. Olson noted that during periods of strong export demand, some of these transportation costs can instead be passed on to buyers in major markets such as China.

Concerns over rail pricing power could deepen if Union Pacific moves forward with its planned purchase of Norfolk Southern, a deal the companies say would streamline freight movement and improve service. Farm groups worry the merger would further squeeze the cash prices farmers receive for their crops. Daniel Munch, an economist with the American Farm Bureau Federation, the country’s largest farm lobby, said combining two major railroads would only increase their market power. Attorneys general from several major grain producing states share that concern. In an August 11 letter to the Surface Transportation Board, officials from Iowa, Kansas, Montana and other states argued there is no justification for creating a larger railroad that would take more money from farmers, shippers and consumers throughout their states and the country.

The dispute over rail pricing arrives at a moment when American agriculture is already navigating a difficult stretch, with production costs climbing and trade tensions adding further uncertainty to export markets. Fuel surcharges have become a recurring flashpoint between railroads and the shippers who depend on them, and with energy markets likely to stay volatile as the Iran conflict continues, the tension between the two sides over freight pricing appears unlikely to ease anytime soon.