Soy Transportation Coalition: A National Investment with Local Farmer Benefit – Cost-Savings of MS River Ship Channel at 50 Feet

The Big River Coalition (BRC) has been cooperatively engaged with the Soy Transportation Coalition’s (STC) Executive Director Mike Steenhoek and Ken Eriksen of Informa Economics on supportive efforts to deepen the Mississippi River Ship Channel to 50 feet.  Last year the BRC requested the STC’s assistance in updating economic information to demonstrate the transportation cost-savings specific to soybean shipments out of the Mississippi River Ship Channel with a channel deepened by 5 feet (45 feet to 50 feet).

The official report as prepared by Informa Economics and commissioned by the STC has now been released and is made available at the link below:

“Impact on Crops and Product Export Flows of Dredging the Lower Mississippi River to 50 Feet”

The timing of the report is excellent and scheduled to match with the U.S. Army Corps of Engineer’s (USACE) release of the signed Director’s Report (Final Report) on the Mississippi River Ship Channel Deepening General Reevaluation Report.  The Director’s Report is expected to be approved and signed by the USACE over the next few weeks, the Ship Channel was federally authorized to be deepened to 55 feet in 1986.

The information from Informa Economics details the following factors related to the potential channel deepening:

  1. It would expand the “draw area” for farmers shipping their exports via the Mississippi River from 205 miles to 245 miles;
  2. Decrease shipping costs of soybeans by 13 cents per bushel for 205 miles from the river, and then steadily declining cost savings until reaching 0 at 246 miles;
  3. Increase soybean revenues by close have $461 million annually throughout 31 states evaluated.

The following quotes are reproduced from the Press Release as distributed by the STC (attached).

 

“The 256-mile stretch of the Mississippi River from Baton Rouge, Louisiana, to the Gulf of Mexico accounts for 60 percent of U.S. soybean exports, along with 59 percent of corn exports – by far the leading export region for both commodities.  There is a growing effort among Mississippi River stakeholders, including agriculture, to promote the dredging of the lower river shipping channel from 45 ft. to 50 ft. in depth.  The STC report – performed by Informa Economics IEG – was designed to increase understanding and awareness of the benefit to the U.S. soybean industry of this potential project.”

“The STC research highlights that shipping costs for soybeans from Mississippi Gulf export terminals would decline 13 cents per bushel ($5 per metric ton) if the lower Mississippi River is dredged to 50 ft.  A deeper river will allow both larger ships to be utilized and current ships being utilized to be loaded with more revenue-producing freight.”

The following quote is reproduced from the full report by Informa Economics:

“The impact of the deeper draft on the lower Mississippi River will save $5 per metric ton in ocean freight as the average weight loaded onto ocean going vessels increases from 66,000 metric tons to 78,000 metric tons. The upriver elevator loading barges with grain destined for export position to an export elevator will have an additional 13 cents per bushel margin to buy volume. To prevent the volume from flowing to the river, the inland facilities will have to pay up to keep the soybeans. The amount the facilities will be willing to pay will depend on how close the facilities are to the river. In short, an inland elevator will not pay more than the transportation to the river. Currently the draw area is estimated to be 205 miles based on an average load of 66,000 metric tons. Increasing to 78,000 metric tons per load will extend the draw area to 245 miles. From a basis standpoint, the basis will improve 13 cents per bushel for 205 miles from the river and decline steadily until reaching zero at 246 miles.”

The BRC intends to utilize the cost-savings for soy cargoes in our collaborative efforts to secure funding to dredge the Mississippi River Ship Channel during the Deepening Project, cost-savings based on reduced transportation costs for all cargoes can be expected.  Although variance of cost-savings between different types of cargo are to be expected, our estimates continue to show that each foot of draft on a deep-draft vessel represents approximately $1 million dollars in cargo value.  The last draft of the USACE’s General Reevaluation Report highlighted a Benefit Cost Ratio of 7.2.

The Coalition intends to represent the Mississippi River Ship Channel Deeping project on an upcoming panel at the Ag Transportation Summit in Arlington, Virginia later this month.

 

A National Investment with Local Benefit: STC Research Identifies Farmer Benefit of Dredging the Lower Mississippi River

Ankeny, Iowa – As real and potential threats confront U.S. agriculture, in general, and the soybean industry, in particular, it becomes all the more incumbent to identify opportunities to enhance farmer profitability. Making strategic investments in infrastructure – the system that allows production to cost effectively and reliably access international customers – is one of the most effective ways to promote and elevate America’s farmers.

To cost-effectively and reliably access domestic and international markets, U.S. soybean farmers rely on a multi-modal transportation system comprised of rural roads and bridges, highways and interstates, freight railroads, inland waterways, and ports. Each link in this supply chain is essential for farmers to remain profitable. While sufficient levels of investment must be directed to each of these essential modes, a recent analysis by the Soy Transportation Coalition (STC) highlights that one particular infrastructure enhancement offers the potential to significantly enhance the competitiveness of the U.S. soybean industry and individual farmer profitability.

The 256-mile stretch of the Mississippi River from Baton Rouge, Louisiana, to the Gulf of Mexico accounts for 60 percent of U.S. soybean exports, along with 59 percent of corn exports – by far the leading export region for both commodities. There is a growing effort among Mississippi River stakeholders, including agriculture, to promote the dredging of the lower river shipping channel from 45 ft. to 50 ft. in depth. The STC report – performed by Informa Economics IEG – was designed to increase understanding and awareness of the benefit to the U.S. soybean industry of this potential project.

The STC research highlights that shipping costs for soybeans from Mississippi Gulf export terminals would decline 13 cents per bushel ($5 per metric ton) if the lower Mississippi River is dredged to 50 ft. A deeper river will allow both larger ships to be utilized and current ships being utilized to be loaded with more revenue-producing freight.

The research also highlights the impact on interior basis – the difference between the local price a farmer receives and the market value established by the Chicago Board of Trade – for soybeans in 31 states if the lower Mississippi River shipping channel is dredged. It is well established that farmers located in closer proximity to thenation’s inland waterways and barge transportation enjoy a positive or less negative basis vs. soybeans grown in areas further removed. As a rule, the less-costly and more efficient the supply chain is subsequent to farmers delivering their soybeans, the higher value a farmer will receive for the bushels of soybeans produced. The STC directed the researchers to produce basis maps for soybean-producing states located adjacent to navigable inland waterways – highlighting the current situation and how basis could improve for soybean farmers if the lower Mississippi River shipping channel is dredged to 50 ft.

Illinois Soybean Basis Pre and Post Lower Mississippi River Deepening (September through November)

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As the above basis maps highlight, areas of the state of Illinois enjoying positive or slightly negative basis will expand if the lower Mississippi River is dredged to 50 ft. The areas with more pronounced negative basis will be crowded out by more favorable basis territory. It is estimated that this development will result in Illinois soybean farmers annually receiving over $77 million more for their soybean crop. This dynamic will be replicated in other soybean producing states along the inland waterway system.

“One of the main reasons soybean farmers in my area of the country can remain profitable is due to our access to the Ohio and Mississippi Rivers,” says Gerry Hayden, a soybean farmer from Calhoun, Kentucky, andchairman of the Soy Transportation Coalition. “Our research highlights that dredging the lower Mississippi River will improve the supply chain for those soybeans being loaded onto the river and eventually exported from theMississippi Gulf region. This more efficient supply chain will translate to more profitable soybean farmers.”

While the research projects Illinois receiving the largest benefit from dredging the lower Mississippi River, the STC research estimates farmers in the 31 evaluated states will annually receive an additional $461 million for their soybeans due to dredging the lower Mississippi River to 50 ft. While those states located in close proximity to the inland waterway system will realize the most benefit, states further removed will also benefit from the increased modal competition between rail and barge. When modal competition increases, a downward pressure on shipping rates will often occur. With barge transportation becoming more viable for a larger percentage of the soybean-producing areas of the country, there will be a greater degree of overlap between areas served by railroads and barge. Soybean shippers will benefit from this modal competition.

“Things like weather can inhibit supply, and geopolitical forces can impede demand, but the barrier to improving our transportation system that connects supply with demand is all too often a lack of will,” explains MikeSteenhoek, executive director of the Soy Transportation Coalition. “All too often, infrastructure investment isallowed to become a theoretical issue. The STC research clearly explains how this single infrastructure enhancement will have tangible benefit to individual farmers in individual states throughout the country. If our nation desires to make our farmers more competitive in a turbulent marketplace, this investment would be an excellent place to start. May we have the will to do so.”

The full study can be accessed via the STC’s website at www.soytransportation.org.