The locks and dams on the Mississippi River are too small to handle today’s increased barge traffic carrying corn, beans, and wheat to Gulf ports for overseas markets. Several billion dollars will be needed for upgrades, but will the Mississippi continue to handle all of that grain if an increasing volume of corn is used for domestic ethanol production, causing a shift in US crop production, and change the dynamics of the international grain trade? This is more than a coffee shop debate on a rainy morning, and may result in fireworks.

In concert with the US Army Corps of Engineers, which controls the river upgrade process, economists at North Dakota State University studied the dynamics at length in their report, Longer-Term Forecasting of Grain Flows and Delay Costs on the Mississippi
River.

To begin the study, there were several “givens:”
• The most important and fastest growth markets, in terms of consumption, are for corn and soybeans in China, North Africa, South Africa, and the Former Soviet Union (FSU) and the Middle East.
• Growth in wheat is less and is dominated by South Asia, Southern Africa, China, and Latin America. The larger traditional wheat markets of Japan and the European Union (EU) have near nil growth rates.
• The United States is the lowest cost producer of corn and soybeans;
• Other countries have lower costs for producing wheat than those in the United States. However, the United States and Canada have quality advantages which are not shared by some of these other wheat-producing countries.
• The rate of increase in yields is less than competing exporters. In competing countries, the rate of increase in yields is comparable to that of production costs.

Ethanol production is the major dynamic that will change the flow of grain. Refineries are being built throughout the Cornbelt, both near and far from the Mississippi River. Ethanol consumption suggests the growth in demand for corn for ethanol to increase to about 4 billion bushels by 2020. Beyond that, most of the increased ethanol production would be cellulosic. In the meantime, Iowa State economist Bob Wisner estimates, “The state of Iowa exported 803 million bushels in 2003, but by 2008 would be deficit
400-500 million bushels with existing plants running at rated capacity.”

A different factor impacting the need for river transportation is the expansion of planted acreage, the areas of expansion, the crops being produced, and the yield increases that occur over time. “The historical average annual corn yield increase was 1.87 bu/a; and is now averaged at 3.14 bu/a over the past 10 years...which shows the impact of ag biotech.” Regarding acreage needs, economists say, “The increase in corn acres to meet these demands would be in the area of 11-12 million acres of corn by 2012, and, if China were an importer this would be 14 million acres. The added planted area could be taken from soybeans, other small grains or from the Conservation Reserve Program (but, with a majority coming from soybeans).

And the ethanol shift has already begun. In 2004, 13% of the IL corn crop went to ethanol, and that will increase to 25% for the current crop. In SD, half of the corn will be refined into ethanol, up from 30% two years ago. This will impact the available corn for either export or use in the Southeast and Southwest feed markets.

After getting a handle on the dynamics of ethanol, the North Dakota economists looked at the costs of barge freight on the Mississippi River system resulting from delays due to outmoded locks. The greatest costs resulted from delays on the upper and lower Ohio River. The least costs resulted from delays on the Illinois River. And delays on the Mississippi from Cairo, IL, northward were in between the Illinois and Ohio costs. “The delay costs were derived for both the existing capacity, as well as for an expanded lock system. It is anticipated that any expansion would take 13-14 years, so, the impact of an expansion is expected in 2020.”

One of the variables the economists studied were the costs of rail transportation as it competes with barge traffic. During the recent study, the rail rates declined below the cost of barge freight, making comparison difficult. The least cost for corn to the Gulf is from Northern Illinois by rail, followed by barge originating in the St. Louis area. For wheat, the least cost to the Gulf is also by rail from Northern Illinois, followed by rail from Minnesota, then by barge from Minnesota. For Soybeans, the least cost is by barge from the Illinois River, followed by barge from Minnesota. Savings were calculated in the $2-$6 range per metric ton per choice of origin.

When the economists fed the information into their computer model, there were some signification predictions that resulted:
• World trade in grain would increase from the current 264 mmt up to 561 mmt in 2060, however US export volumes would grow from the current 101 mmt to 122 mmt in 2010 and then decline.
• The shift is for increased corn from Argentina and Eastern Europe, soybeans from Brazil and Argentina, increased wheat from Australia and Canada; and reduced wheat from Argentina and the United States,
• US exports initially increase as a result of increased planted acreage and availability of grain to export, as well as a decline of Chinese exports. The subsequent decline in US exports results from increasing competitiveness from other exporting countries and domestic use of corn for ethanol. Wheat exports drop and soybean exports increase.

The economists studied the impact of what would happen if the lock and dam infrastructure on the Mississippi between Cairo and Davenport and the Illinois River were upgraded by 2020 to handle greater volumes of barge traffic. “The results indicate a change in barge shipments by about +4 mmt by 2020, nearly all of which would be for corn and soybean in equal amounts. Thereafter, the change in barge shipments would be about +1 mmt to +2.5 mmt, with most of it being soybeans.” They also found that when volumes of grain increase because of reduced delays and costs on the Mississippi and Illinois Rivers, total barge shipments decrease on the Ohio River.

The North Dakota State economists said without expansion of the locks, delays cost about 1.5¢/bu. of grain. As barge shipments increase, the costs rise to about 3¢ per bu. “Expanding lock capacity has the effect of reducing delay costs, and increasing capacity. An expanded lock system would result in lower delay costs at each (portion of the river system.). Those on the Illinois decline by about $1.01/mt. (3¢/bu.) Similar declines occur (on the mid-Mississippi) ($1.04/mt) and those (in the St. Louis area) are about $0.44/mt. (1.5¢/bu.)”

The economists say those statistics are based on conservative estimates of ethanol production. But if more ethanol is produced and less grain is shipped by barge, costs associated with delays will change little. With volumes of ethanol production up to 12 billion gallons per year, the flow of grain within the US changes considerably, with a “drastic increase in shipment to the Eastern and Western corn belts reflecting the increase in domestic demand for ethanol use.” There are reductions in corn shipped by barge from all sections of the Cornbelt, except for an increase from Illinois south to New Orleans. Corn and wheat shipments by barge decline to zero by 2030, but soybean shipments by barge increase to 2030.

Summary:
Delays caused by the lock and dam system to grain-filled barges result in increased costs per bushel of grain, and those costs will increase with more barge volume and more delays. The advent of the ethanol industry will shift considerable amounts of corn away from the barge transportation system, to rail and truck traffic within the Cornbelt. Future demands for grain exports will be dependent upon the volume of ethanol produced, Chinese grain production policies, acreage expansion within the US, and the grain production and consumption dynamics within other countries.