US grain exports snagged by infrastructure delays

[August 25, 2008]  NEW YORK (AP) -- Across the country, from grain elevator to grain elevator, golden wheat and corn are piled in towering mounds, waiting for a rail car to haul them to market.

Some grain can sit for a month or more on the ground, exposed to wind, rain and rats.

It's the dark side of the booming global demand for U.S. corn, wheat and soybeans. The surge in exports is revealing inefficiencies in the country's railways, highways and rivers that carry the grain that helps feed the world. And those bottlenecks are costing farmers, shippers and ultimately consumers millions of dollars a year.

Mark Hodges, the executive director of the Oklahoma Wheat Commission, has seen it firsthand. Earlier this summer, when consumers around the world hungered more than ever for American wheat and corn, he hopped into his pickup truck and toured local grain elevators.

Piles of grain sat like giant anthills, waiting to be shipped. Frantic managers couldn't find enough rail cars to haul it.

"When you're putting wheat on the ground, there's going to be a loss," Hodges said. "They don't ever like to put it on the ground, but when wheat is $7, $8 or $10 a bushel, they sure don't like to put it on the ground."

A surprisingly large harvest this fall is expected to test the system even further. The U.S. Department of Agriculture predicts farmers will produce the second largest corn crop and fourth largest soybean crop in history.

Some agribusiness groups worry the bottlenecks could hurt the United States' standing as a global food provider as other nations, such as Brazil and Argentina, compete for a lucrative share of the market.

In years past, bountiful harvests meant millions of bushels were stored outside overstuffed grain silos, waiting for shipment. Commodities loaded on barges faced long waits at outdated locks and dams on the Mississippi River, adding days and dollars to their transportation.

The barge delays alone added an average $72.6 million annually to cost of shipping goods down the Mississippi and Illinois rivers, according to a new Army Corps of Engineers analysis provided to The Associated Press.

Rail delays are costly as well. In 2006, an estimated 1 billion bushels of grain was stored outside or in improvised shelters in Iowa, Illinois and Indiana, adding an estimated $107 million to $160 million that year to the cost of transporting it, according to USDA figures. That's about 1 percent of the combined $13.8 billion value of corn and soybean exports in 2006.

"We're way, way behind in our infrastructure investment, both in the private sector and publicly," said Peter Friedmann, executive director of the Agriculture Transportation Coalition, a trade group representing grain exporters. "And we need to move a lot on that or we will see other countries supplant us as they get greater investment in their infrastructure."

The problem is likely to persist, if not worsen, in years to come.

Fixing the bottlenecks will take billions of dollars in investment over several years. In the meantime, exports are forecast to increase, with corn shipments expected to grow every year over the next decade from 54 million metric tons to 77 million metric tons, according to the Food and Agricultural Policy Research Institute.

Added costs from bigger bottlenecks could only hurt U.S. farmers in a competitive global industry.

"Price is still king in this business," said Larry Jansky, senior trader in agricultural commodities for North Pacific Inc. in Portland, Ore. "Two or three dollars a ton is the difference between getting a contract or not."

Agricultural exports last year were worth just less than $90 billion. If the U.S. loses just 1 or 2 percent of that market to fast-growing exporters like Argentina, it could drain between $900 million and $1.8 billion from the economy.

Economists say higher transportation costs can hurt both farmers and consumers. That's because grain elevators or barge companies can cover higher costs by paying farmers slightly less for their grain, or by charging consumers slightly more for it. The USDA does not track how much cost transportation bottlenecks add annually to the price of food.

Grain elevator operators have become adept at storing grain outside, using concrete pads and tarps to ensure just a fraction of the harvest is lost, said USDA economist Marvin Prater.

But even in the best conditions, storing grain outside means the cargo must be "double handled," being dumped once outside, then recollected to be loaded into a silo and then a rail car. By contrast, when things work smoothly grain is loaded from a farmer's truck directly into grain elevators that funnel it into waiting rail cars. Double handling adds between 10 and 15 cents a bushel, Prater said.

Last year in Colorado, wheat piled up after an exceptional harvest. Tempel Grain Elevators elevator manager Tony Leighty said he scrambled to order more train cars, which were fetching premiums of up to $2,000 a piece. He lost an estimated 10,000 bushels of wheat, worth about $100,000, that sat on the ground.

"It was horrible," he said.

The Association of American Railroads estimates it will cost about $148 billion to expand rail lines over the next 30 years to handle increased demand. But the group says railroad companies can only afford to fund about 70 percent of that.

The AAR and farm industry groups are backing legislation that would offer tax credits for investments in freight rail expansion.

Barges floating down the Mississippi have long been a cheaper shipping alternative for farmers who aren't landlocked. But the barge traffic is hampered by Depression-era locks and dams.

A modern sized barge tow is typically 1,100-feet long -- but the locks they must pass through are roughly half that length. The means the barges must split in two to get through, with the back half waiting for the first half to make the passage before rejoining it on the other side.

The delays add about 50 hours of travel time along the upper stretch of the Mississippi, said Corps Manager Scott Whitney. The barges must burn fuel and pay workers as they wait, racking up an estimated $725.6 million in extra costs along the Illinois and Mississippi Rivers between 1996 and 2005.

Congress authorized the Army Corps last year to update locks and dams along the Mississippi. But Congress must approve funding for the project, which is estimated to cost $2.21 billion over more than 20 years.

One of the tightest bottlenecks happens at busy U.S. ports, where crops are loaded onto oceangoing vessels.

Over the years, exporters have increasingly shipped grain by renting empty containers that brought consumer goods to the United States from overseas markets like China. But as those imports have fallen, exports are having to wait longer, and pay more, to find space on outward-bound vessels, said Jansky, the grain trader in Portland.

Jansky said the cost of renting a 20-foot container has more than doubled to $1,700 in the last 10 months alone.

"All of the sudden, grains are starting to have to pave their own way," he said. "All of the sudden, we're grabbing for vessels now."

[Associated Press; By CHRISTOPHER LEONARD and CATHERINE TSAI]

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