STC Research Identifies Ag Benefit Of Dredging LMR
Informa Economics IEG recently performed a study on behalf of the Soy Transportation Coalition (STC) that examined the benefits of dredging the Lower Mississippi River and its impact on farmers, especially soybean farmers. The report, which was made public July 10, outlined how real and potential threats confront U.S. agriculture, in general, and the soybean industry.
The report went on to suggest that making strategic investments in infrastructure 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 multimodal transportation system comprised of rural roads, bridges, highways, interstates, freight railroads, inland waterways and ports. Each link in this supply chain is essential for farmers to remain profitable.
The report noted that while sufficient levels of investment must be directed to each of these essential modes, research conducted by 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—dredging.
Benefits Of Dredging
The 256-mile stretch of the Mississippi River from Baton Rouge, La., 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 to 50 feet in depth.
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 were dredged to 50 feet. A deeper river will allow both larger ships to be utilized and current ships 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 the nation’s inland waterways and barge transportation enjoy a positive or less negative basis rather than 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, noted the report.
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 the basis could improve for soybean farmers if the Lower Mississippi River shipping channel is dredged to 50 feet.
Illinois Soybean Farmers
The report said that the portion of Illinois enjoying positive or slightly negative basis will expand if the Lower Mississippi River is dredged to 50 feet. 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,” said Gerry Hayden, a soybean farmer from Calhoun, Ky., and chairman of the STC. “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 the Mississippi 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 river to 50 feet. 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, the report stated.
“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,” said Mike Steenhoek, executive director of STC. “All too often, infrastructure investment is allowed 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.