River Shipping Disrupted: Economic Impact on Corn and Soybeans? 15 Key Points

    Mississippi River Lock and Dam number 7 - From USGS

    The Upper Mississippi River-Illinois River (UMR-IR) is a primary corridor for U.S. grain and oilseeds to Gulf of Mexico export ports. The U.S. Army Corps of Engineers (USACE or Corps) maintains a 9-foot-deep navigation channel for barge transportation on a total of 36 locks and dams, including 28 on the UMR and 8 on the IR.  

    Built in the 1930s, most of these locks have surpassed their designed lifespan. However, maintenance and rehabilitative efforts by the Corps have extended the life cycle of many of the projects. Nevertheless, the U.S. grain and oilseed industry has frequently raised concerns about the navigational efficiency of these aging and constrained waterways.

    Congress authorized the Navigation and Ecosystem Sustainability Program (NESP) in 2007 to address the capacity constraints on the most congested segments of the UMR-IR. However, the implementation of NESP has been delayed due to a lack of preconstruction and construction appropriations from Congress.

    This study examines the potential economic impacts of UWR-IR navigability on U.S. corn and soybean stakeholders and certain sectors of the transportation industry if long-duration disruptions were to occur because of significant lock closures for major unanticipated repairs. Specifically, the study estimates the net changes in economic surplus of the corn and soybean sectors, along with shifts in transport mode for grain flows before and after assumed disruptions of the lock system in the next decade.

    Increased transportation costs caused by the disruptions resulted in changes in the economic surplus of the corn and soybean sectors due to a loss in profits by producers and increased purchase costs for consumers.

    What did the study find?

    The key findings of the economic impacts from lock disruptions are summarized as follows:

    1. The closure of Lock 25 during harvest season from September to November—with rail rates remaining unchanged—resulted in corn and soybean prices in Illinois, Iowa, and Minnesota (adjacent to the UMR) decreasing up to $4.89/ metric ton (mt) ($0.13/bushel (bu)) and $8.25/mt ($0.22/bu), respectively.
    2. When the horizon of the lock closure extends to 1 year, corn prices in the regions next to the river decrease $6.61/mt ($0.17/bu) and the soybean prices decline up to $10.81/mt ($0.29/bu) if rail rates remain steady.
    3. The producer prices of corn and soybeans drop further when rail rates increase and Lock 25 is inaccessible for a year, with prices reducing up to $8.15/mt ($0.21/bu) for corn and $16.33/mt ($0.44/bu) for soybeans.
    4. The reduction in producer prices varies across region subject to the availability of alternative routes and modes to markets.
    5. The analysis shows a similar pattern when La Grange Lock is closed. A reduction of 5 million tons, or a 9-percent decrease, of corn and soybean exports at Gulf ports occurs with a closure of Lock 25 for the fall quarter.
    6. Extending the closing horizon through the entire marketing year results in a reduction of exports of nearly 8 million tons, or 13 percent.
    7. Disruptions at La Grange Lock lower corn and soybean exports at Gulf ports by 5 percent. • Pacific Northwest ports are the major alternative routes to the international markets when Lock 25 or La Grange is closed if rail rates do not increase. Exports from Atlantic Coast emerge as an important substitute port area if rail rates elevate after lock closure.
    8. When one or the other of the two locks is not accessible, it results in a considerable reduction in the number of ton-miles of corn and soybeans hauled by barge. Rail ton-miles for corn and soybeans, unsurprisingly, escalate. However, increases in rail rates divert some volume to truck and barge transportation.
    9. Aggregate economic activity related to grain barge transportation is reduced by $933 million (40-percent decrease) if Lock 25 is closed from September to November. The reduction reaches nearly $2 billion if the lock is unavailable for the entire marketing year.
    10. If rail rates increase due to the lock closure, economic activity associated with rail transportation increases from corn and soybean shipments diverted from barge to rail. The positive economic impacts for the rail sector surpass the loss of economic activity of barge and truck transportation when rail rates increase.
    11. Economic surplus of the corn and soybean sector declines between $171 million for a fall closure and $747 million annually when Lock 25 is inaccessible. Closing La Grange Lock also leads to a loss of $549 million per year in economic surplus of the corn and soybean sectors.
    12. Corn and soybean producers in the Corn Belt region suffer the most loss in economic surplus, followed by the Lake State region and Northern Plains region.
    13. The estimated decline in economic surplus in the corn and soybean sectors due to a closure of Lock 25 could cause a decrease of more than 7,000 jobs, a $1.3 billion loss of labor income, and a reduction of about $2.4 billion of economic activity (total industry output) annually.
    14. Similarly, closing La Grange Lock for the entire marketing year could result in a reduction of 5,500 jobs, a loss of $900 million in labor income, and a reduction of $1.8 billion of economic activity annually.
    15. Closing Lock 25 or La Grange Lock creates net negative impacts on jobs, labor income, total value added, and total industry output in the U.S. economy.

    Click here to read the full report.


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