Demand conditions being equal, the market with the lowest freight cost is in a position to make the highest bid to the local shipper in a given surplus area. Changing crop conditions, however, may create demand for feed grains in territories normally not in the market. When such demands arise the market serving the deficit areas must bid equal to, or above, the market with the favorable freight cost in order to draw grain from an equal or slightly higher freight cost area.
When production in the western feeding area, served by Kansas City, falls to or below 82 percent of normal, Kansas City is forced to bid from 1 to 5 cents above Chicago to draw corn from north central Iowa where freight rates are equal to both markets. In years when production in the western area reaches this low level the price differential usually exists for a period of 12 to 14 months, from mid-summer of the small crop year to mid-summer of the following crop year.
Bentley, Ronald C.
"Freight costs of moving Iowa feed grains from surplus to deficit areas,"
Bulletin: Vol. 30
, Article 1.
Available at: https://lib.dr.iastate.edu/bulletin/vol30/iss342/1