Agribusiness Angles for Infrastructure Upgrades on U.S. Inland Waterways

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)