Steps To Competitiveness
U.S. soybean producers are building better ways to transport and market.
A new report shows that since 2013, Brazil has surpassed the U.S. in soybean exports, becoming the world’s top soybean exporter.
That report by the USDA, “The Impact of Infrastructure and Transportation Costs on U.S. Soybean Market Share” notes: “The road ahead for U.S. soybean competitiveness is uncertain. Brazil is intensifying its efforts to increase production and improve transportation infrastructure, and it has gained soybean market share. Brazil’s freight rates may also be reduced in the future because of improvements to its transportation infrastructure.”
According to the USDA’s numbers, U.S. market share declined from 66% in 1992 to 40% in 2017. Competitiveness relative to South America declined during a period of strong global growth for soybean demand. The United States remains the second-largest exporter, however.
For the last 17 years, China, the world’s largest soybean importer, has been responsible for nearly all of the growth in global soybean trade, the report notes. In 2017, per-bushel total production costs in the U.S. Midwest averaged $9.29 per bushel compared with $7.52 per bushel in Argentina, $7.53 per bushel in the Brazilian state of Mato Grosso and $8.01 per bushel in Paraná. Variable costs in the U.S. are lower, but fixed costs due to land values and capital expenses are much higher than in Mato Grosso and Paraná.
The USDA report notes one of the challenges for the U.S. partially depends on competing countries’ ability to improve their infrastructure capacities and reduce their transportation costs.
“Differences in transportation costs can make South American soybean exports more profitable than those of the United States, diverting trade from the United States to Brazil or Argentina at key junctures of the most lucrative marketing periods,” the overview notes.
REPAIRS TO INFRASTRUCTURE
It’s no secret the aging system of locks and dams on U.S. rivers is in desperate need of repair and/or replacement. Each time locks go down for repair, commerce on the river is interrupted, increasing costs for exporters if shipments are late out of the Gulf because of a wait for late barges to arrive. This is a story told over and over again and, so far, without a good ending.
The Soy Transportation Coalition (STC) has been working to bring attention to this issue, releasing a study financed by the soybean checkoff, “Farm to Market: A Soybean’s Journey From Field to Consumer.” The study offered a warning that future production increases, along with infrastructure improvements by South American competitors, could suppress profitability of the U.S. soybean industry.
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“Transportation infrastructure gives U.S. farmers a significant competitive advantage over our international competitors; but without investment, we won’t enjoy that advantage for long,” says Mark Seib, a soybean farmer from Poseyville, Indiana, and a director on the United Soybean Board. “We need to focus on investing in our infrastructure now to position ourselves for a competitive and profitable future.”
Mike Steenhoek, executive director of the STC, stresses, “great nations, as well as great industries, continue to invest in themselves. Investing in infrastructure should not be an isolated incident. It needs to be perpetual. By issuing this report, it is our hope that we will increase attention and focus on the importance of investing in our economy and industry to enable us to remain competitive in the 21st century.”
DEEPER DREDGING BENEFITS
The STC has a more detailed look at how to improve the draft of the lower Mississippi River from 45 to 50 feet to increase the reliability of river navigation and reduce the impact of low water events. That study, “Impact on Crops and Product Export Flows of Dredging the Lower Mississippi River to 50 Feet,” explains the current depth of 45 feet on the lower Mississippi River is typically dredged to at least 47 feet to ensure vessels do not hit the bottom of the riverbed. However, under certain conditions, a Neopanamax vessel loaded to 77,000 metric tons is under the 47-foot depth.
According to the study, a deeper-draft, lower Mississippi River would save $5 per metric ton in ocean freight, as the average volume loaded increases from 66,000 metric tons to 78,000 metric tons.
“The barge river elevator to export elevator will have an additional 13-cent-per-bushel margin to buy volume. To prevent the volume from flowing to the river, other inland facilities (crushers, unit train loaders, container loaders, etc.) will have to pay up to keep and handle the soybeans,” the report notes.
What facilities will be willing to pay will depend on how close their operations are to the river.
“In short, an inland elevator will not pay more than the transportation to the river,” the study results show. “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, basis will improve 13 cents per bushel for 205 miles from the river and decline steadily until reaching zero at 246 miles. The deeper draft of the lower Mississippi River will increase soybean revenues by close to a half-billion dollars annually.”
CONTAINERIZED EXPORT OPTIONS
The STC is also studying the potential for soybeans, soybean meal and other agricultural products to benefit from new and innovative approaches moving containers for the hauling of global trade via the nation’s inland waterway system.
That report, “Containerized Exports via the Inland Waterway System: An Opportunity for Agriculture?” notes that trade frictions with China have underscored the importance of exploring opportunities to develop new international customers.
Steenhoek notes, “containerized shipping provides the potential to access diverse and localized customers that are often unable or unwilling to purchase soybeans in large, bulk quantities.”
This has the potential to allow local grain handlers and, perhaps, even farmers to more directly participate in the international market.
Gerry Hayden, a soybean farmer from Calhoun, Kentucky, and chairman of the STC, says “it should be the goal of the STC to explore opportunities to remove logistical steps between the farmers growing soybeans and the ultimate customers purchasing them. Every step that is removed allows farmers to realize a higher value for what is produced. We are therefore excited to explore this new approach for transporting containers along our nation’s inland waterway system.”
Steenhoek notes the research for this study highlights this innovative approach that can “provide a cost-effective, fast and secure transportation option to our international customers. As we interact with our international customers, we increasingly hear a desire for being able to source soybeans and agricultural products more directly from more localized elevators and even specific farmers.
“Our customers also routinely express a desire for greater quality preservation and smaller shipping quantities that conform better with the scale of their specific operations,” he continues. “Exploring this new model of containerized shipping via the inland waterway system is a response to this growing customer sentiment. We look forward to utilizing our research to further introduce farmers and agricultural shippers to this innovative opportunity. Ultimately, we hope to see this approach become a reality to the benefit of America’s farmers.”
The STC is partnering with American Patriot Holdings and Plaquemines Port Harbor and Terminal District in establishing working groups among communities and regions along the inland waterway system that are well positioned to benefit from this potentially new supply chain.
FOR MORE INFORMATION:
> Soy Transportation Coalition
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