Agribusiness Angles for Infrastructure Upgrades on U.S. Inland
Wall Street Journal
8 June 2017
By Jacob Bunge and Jacob Bunge
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
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 Inc., 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, 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 as much as 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.
On the banks of the Ohio River on Wednesday, Mr. Trump highlighted
the need to adequately fund the nation’s aging locks and dams.
“Together we will fix it,” he said, though details on his plans
remain scant. Mr. Trump echoed estimates by The Waterways Council
Inc., a trade group for river-reliant shippers that has called for
more spending on rivers infrastructure for years, and pegged 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
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.
Write to Jacob Bunge at email@example.com and Jesse Newman at
Appeared in the June 8, 2017, print edition as 'Grain-Transport