Cash Market Moves

Impact of Infrastructure and Transportation Costs on Soybeans

Mary Kennedy
By  Mary Kennedy , DTN Basis Analyst
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Empty barges parked alongside of the Mississippi River in downtown St. Paul, Minnesota, late summer. (DTN photo by Mary Kennedy)

Since the 1990s, the United States, the world’s leading producer of soybeans, has lost market share to Brazil, noted USDA in its most recent study, "The Impact of Infrastructure and Transportation Costs on U.S. Soybean Market Share: An Updated Analysis from 1992-2017."

"U.S. market share declined from 66% in 1992 to 40% in 2017. U.S. competitiveness, relative to South America, declined during a period of strong global growth in soybean demand, however, the United States remains the second-largest exporter," noted USDA. "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. In 2017, per-bushel total production costs in the main producing areas of 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 Parana." Although variable costs in the United States are lower, fixed costs due to land values and capital costs are much higher than in Mato Grosso and Parana.

"As the largest producer of soybeans in the world, one of the challenges for the United States partially depends on competing countries’ ability to improve their infrastructure capacity and reduce their transportation costs," noted USDA. "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.

"Since 2013, Brazil has surpassed the U.S. in soybean exports, becoming the top world soybean exporter", said USDA in the study. "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."

Here is a link to the entire USDA study and it is well worth the read: http://www.dtn.com/…

WHAT U.S NEEDS TO DO IN ORDER TO REMAIN COMPETITIVE

It's no secret that the aging locks and dams on the U.S. river system are in desperate need of repair and or replacement. Each time locks go down for repair for any reason, commerce on the river is interrupted, causing extra costs for exporters if shipments are late out of the Gulf waiting for late barges to arrive. This is a story told over and over again, and so far, without a good ending.

In a December 2016, the Soy Transportation Coalition (STC) released a study funded by the soybean checkoff, "Farm to Market -- A Soybean’s Journey." The study offered a warning that future production increases, along with infrastructure improvements by South American competitors, could suppress the profitability of the U.S. soybean industry.

"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,” said Mark Seib, a soybean farmer from Poseyville, Indiana, and 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."

"Great nations, as well as great industries, continue to invest in themselves," explained Mike Steenhoek, executive director of the STC. "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." The entire study can be found on the front page of the STC website.

In May 2018, the STC published another study called "Impact of Dredging the Lower Mississippi River to 50 Feet." The study notes that improving the draft of the lower Mississippi River from 45 feet to 50 feet would increase reliability of river navigation and reduce the impact of low water events. The current depth of 45 feet on the lower Mississippi River is typically dredged to at least 47 feet to ensure the vessel does not hit the bottom of the riverbed. If the proper conditions exist, a Neopanamax vessel can be loaded to 77,000 metric tons under 47-foot depth.

According to the study, the impact of a deeper-draft lower Mississippi River will 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."

What facilities will be willing to pay depends on how close the facilities are to the river. "In short, an inland elevator will not pay more than the transportation to the river," the study results noted. "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." This entire study also touches on the impact of corn exports, among other things. The 144-page study is worth looking over and can also be found on the STC website.

In October 2018, the latest study done by the STC, with help from the Illinois soybean checkoff program and also found on its website, is titled, "Containerized Exports via the Inland Waterway System: An Opportunity for Agriculture? The study provides clarity on the potential for soybeans, soybean meal and other agricultural products to benefit from a new and innovative approach moving containers for the hauling of global trade via the nation’s inland waterway system.

"The soybean industry continues to explore opportunities to develop new international customers," said Steenhoek in an email to DTN. "The current trade friction with China has added a sense of urgency in doing so. Containerized shipping provides the potential to access diverse and localized customers that are often unable or unwilling to purchase soybeans in large, bulk quantities."

The news release posted on the STC website highlights "an innovative concept that has the potential to diversify our supply chain and allow local grain handlers and perhaps even farmers to more directly participate in the international market," according to Steenhoek.

"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," said Gerry Hayden, a soybean farmer from Calhoun, Kentucky, and chairman of the STC. "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 said that the research for this study highlighted 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. 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," concluded Steenhoek.

The Soy Transportation Coalition will be partnering with American Patriot Holdings, LLC 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.

To inquire further about the working groups, contact Mike Steenhoek at 515-727-0665 or msteenhoek@soytransportation.org

Here is link to the Soy Transportation Coalition website where all of their studies are located:

http://www.soytransportation.org/…

Mary Kennedy can be reached at mary.kennedy@dtn.com

Follow her on Twitter @MaryCKenn

(BAS/SK)