Agribusiness Angles for Infrastructure Upgrades on U.S. Inland Waterways
08 June 2017 - 3:29AM
Dow Jones News
By Jacob Bunge and Jesse Newman
President Donald Trump's focus on infrastructure this week
highlights a long-festering problem in the U.S. heartland:
crumbling river systems that can make it more costly to transport
crops.
The U.S. river system ferries nearly three-quarters of
export-bound U.S. grain to ocean ports that ship U.S. goods around
the world. But most locks and dams, which allow grain-laden river
barges to move between higher elevations and lower-lying waters,
have outlived their intended 50-year lifespans, according to U.S.
farm and industry groups.
Sporadic breakdowns in river infrastructure add to transport
costs of grain exporters like Cargill, Archer Daniels Midland Co.
and Bunge Ltd. Additional costs resulting from idled boat crews and
the need to shift more grain onto railroads add up.
Grain exporters typically pass some of those costs on to farmers
by way of lower prices paid per bushel of corn or soybeans. "The
river sets the tone that domestic [crop] prices tend to feed off,"
said Rick Calhoun, who oversees barge operations for Cargill Inc.,
the largest U.S. agricultural company by sales.
Any unplanned long-term closings of certain locks on the Upper
Mississippi or Illinois rivers could compound transport costs and
result in a drop of up to 21 cents for corn and 44 cents for
soybeans in the per-bushel prices that grain companies pay to
nearby farmers, according to U.S. Department of Agriculture
research. Such closings could leave grain companies with less grain
to market and reduce economic activity by up to $2.4 billion,
according to the research.
Mr. Trump's infrastructure-focused speech in Cincinnati
Wednesday will touch on inland waterways, according to the White
House. Details on the plan are scant. But the Waterways Council
Inc., a trade group for river-reliant shippers that has called for
more spending on rivers infrastructure for years, estimates the
current backlog of high-priority maintenance at some $8.7
billion.
The Mississippi, Illinois and Ohio rivers are most critical for
barge transport of grain. Locks in the Pittsburgh area are among
the nation's oldest, and facilities on the Upper Mississippi and
Illinois rivers also need maintenance, industry groups say. The La
Grange lock and dam on the Illinois River is in dire need of
rehabilitation, according to the Soybean Transport Coalition.
Some grain companies have invested in rail facilities around St.
Louis or further south so they have more options in case of
problems on the upper river system.
"Reliability is the really big concern we have," said Mike
Steenhoek, executive director of the Soy Transportation Coalition,
noting that crumbling concrete walls and rusty gate mechanisms are
plain to see at locks in the Farm Belt. "It's only a matter of time
before you have failure at one of these sites."
Cargill's Mr. Calhoun said while grain traders like Cargill
aren't now systematically pricing in lock or dam failures on U.S.
rivers, the threat of a 60- or 90-day closure looms. If such a
breakdown were to hamper transport, it could slash the prices U.S.
farmers get for their crops at a time when they already face
sharply lower commodity prices and incomes.
U.S. farm groups and agricultural conglomerates have complained
about underinvestment in locks and dams for years while highways
and airports have had priority for government funding. In late
2015, Congress authorized $405 million to upgrade locks and dams
primarily on the Ohio River.
Five years ago, drought in the Midwest led to low water levels
on the Mississippi River south of St. Louis, exposing riverbed
rocks that threatened barges hauling the autumn harvest. Grain
companies had to run fewer barges carrying lighter loads down the
river while the U.S. Army Corps of Engineers blasted the rocks
away.
Kenneth Hartman, an Illinois farmer based about 25 miles south
of St. Louis, said per-bushel prices offered for his grain dropped
by about 14% versus other parts of the state. Most local buyers of
his crops, who ship them down the river, lowered the prices they
were offering to compensate for the extra transport costs they
faced during the emergency maintenance. "Frankly, on the rivers we
haven't done due diligence in keeping things up to speed like a
farmer does," Mr. Hartman said.
Added transport expenses also can make U.S. crops less
competitive on global grain markets, where they are pitted against
crops from ascendant farm powers like Russia and Brazil, whose land
is cheaper and labor costs are lower. Export rivals from South
America and Eastern Europe have eroded the U.S.'s long-held
agricultural dominance in global grain markets. U.S. exporters
absorb some of the financial toll of inefficient transport.
Meanwhile, significant delays undermine the perceived reliability
of U.S.-grown crops, which could spur foreign-based livestock
producers or food companies to seek steadier grain flows from other
countries, agriculture officials say.
U.S. farmers retain an edge on their overseas rivals when it
comes to logistics -- for now. In Brazil, the cost to truck
soybeans across the interior -- still the country's predominant
means of transporting farm goods -- can range from $52 to $103 a
metric ton, according to analysis by the United Soybean Board,
compared with costs ranging from $21 to $30 a ton for truck, rail
and barge transport in the U.S.
But planned railroad and river projects in Brazil could cut
transport costs nearly in half, according to U.S. Department of
Agriculture projections, ratcheting up the competitiveness of
Brazilian crops, when taking the country's typically weaker
currency and cheaper land into account.
(END) Dow Jones Newswires
June 07, 2017 13:14 ET (17:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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