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The Shifting Nexus of Global Agriculture
Investing in Agricultural
Infrastructure
Ken Eriksen
Senior Vice President July 16, 2013
Prepared for
Charting the Course
Impact of Infrastructure on U.S. Agriculture
Key Agricultural Transportation and Infrastructure Issues
Transportation of Grains, Soybeans and Products
South America Infrastructure Influence
Sustainable Transportation
2
Impact of Infrastructure on U.S. Agriculture
3
Industries Fully Dependent on Soybeans, Grains and Related Products
To the Second Order Consumers in the Supply Chain: ◊ Delivery of commodities from farming of significant importance to
the U.S. economy ◊ 1.5 million jobs, ◊ More than $352 billion in U.S. output, ◊ Over $41 billion in labor earnings, and ◊ Greater than $74 billion in value added on the U.S. economy.
4
Infrastructure Framework
5
Infrastructure Problems = Inefficiencies
Inefficiencies = Lower Effective Transport Capacity
Lower Effective Transport Capacity = Higher Rates
Higher Rates = Lower Farmer Returns
Key Transportation and Infrastructure Issues
6
Key Infrastructure Issues
Infrastructure Project Description
Cumulative Outlays
($ millions) Inland Navigation Lock and Dams
Mississippi River Lock 20, 1,200 foot Lock Addition + Lock & Dam Rehabilitation
$311.1
Mississippi River Lock 25, 1,200 foot Lock Addition + Scour Repairs & Rehabilitation
$429.9
Ohio River Olmsted Lock & Dam Construction and Lock 52 and Lock 53 Removal
$2,044.0
Ohio River Markland Lock Major Rehabilitation
$35.8
Illinois River LaGrange Lock Addition
$320.9
Illinois River LaGrange Lock Rehabilitation
$78.8
Channel Dredging by Army Corps of Engineers District
Galveston $1,230.8 Mobile $677.8 New Orleans $2,322.5 Portland $288.0
7
Modal Developments beyond the U.S. Borders: Panama Canal
8
DimensionCurrent
(ft)3rd Lock
(ft) ChangeDraft 39.5 60.0 52%
Width 110.0 180.0 64%Length 1,000.0 1,400.0 40%
Ship Length 965.0 1,265.0 31%
Soybean Planted
Acreage Impact
70 miles ◊ 26.7 mil.
111 miles ◊ 27.9 mil.
161 miles ◊ 49.6 mil. (two-thirds U.S.)
Cost Savings to Soybean and Grain Users Derived From Infrastructure Improvements
9
Improved reliability in the delivery time of soybeans and grains
Reduced travel time and transit costs
Improved efficiency at ports for using larger, more efficient ocean going vessels
Potential re-assignment of rail traffic to barge traffic for freight currently utilizing rail to avoid deficiencies at key lock and dam facilities
Annual Summary Investment Outlays & Returns for Soybeans & Grain Industries
10
Description Impact Type
Dollar Value
(million)
Economic Impact
Earnings (million)
Output (million)
Employ-ment
Value-Added
(million) Infrastructure Outlays
Construction
$467.2
$400.8
$1,176.5
7,927
$615.2
Supply Chain Impacts
Cost Savings
$145.9
$8.9
$40.3
185
$15.5
Long-Term Problem on the Rivers
11
Army Corps of Engineers Project Completion Schedule for Select Locks
2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
L/D 25 Upper Miss Dam
LaGrange
ILL WW Thomas O’Brien L/D
Mel Price Upper Miss
Year
Army Corps of Engineers Project Completion ScheduleMajor Rehabilitation
2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
Olmsted L/D Construction
Kentucky Lock Addition
L/D 25 Upper Miss 1200’ Lock Addition
LaGrange 1200’ Lock Addition
L/D 22 Upper Miss 1200’ Lock Addition
L/D 24 Upper Miss 1200’ Lock Addition
Year
Army Corps of Engineers Project Completion ScheduleNew Construction
Deteriorating Infrastructure Situation
12
Backlog of Lock and Dam Repairs and Emergency Repairs ◊ Industry needs reliability through infrastructure maintenance ◊ Not full solution, clearing deferred maintenance buys down risk of
catastrophic event or closure until authorized major rehabilitation or new construction can be appropriated and completed
◊ Diversion to other modes substantial 1 Barge = about 1,600 tons or 53,000 bushels 1 Railcar = about 110 tons or 3,670 bushels 1 Truck / Container = about 26 tons or 870 bushels So, One 15-barge tow on Illinois River is equivalent to 216
rail cars or 1,050 semi-trucks If 90-day closure at LaGrange Lock during peak soybean
harvest movement 341 barge loadings diverted as 5,000 rail carloads or 21,000
truck loads
Extreme Wall of Water Not all Rivers Created Equal
13
-20
-10
0
10
20
30
40
50
60
Jan-
11
Feb-
11M
ar-1
1
Apr
-11
May
-11
Jun-
11
Jul-1
1
Aug
-11
Sep-
11
Oct
-11
Nov
-11
Dec
-11
Jan-
12
Feb-
12M
ar-1
2
Apr
-12
May
-12
Jun-
12
Jul-1
2
Aug
-12
Sep-
12
Oct
-12
Nov
-12
Dec
-12
Jan-
13
Feb-
13M
ar-1
3
Apr
-13
May
-13
Jun-
13
Feet
Daily
Daily Mississippi River Gage: Memphis
Source: Army Corps of Engineers
Nearly a 6-Story Building
Reduced Driving, Fewer Miles & Improved Efficiencies = Less Highway Funding Base
14
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
1,500
1,700
1,900
2,100
2,300
2,500
2,700
2,900
3,100
3,300
3,500
Jan-
83Ja
n-84
Jan-
85Ja
n-86
Jan-
87Ja
n-88
Jan-
89Ja
n-90
Jan-
91Ja
n-92
Jan-
93Ja
n-94
Jan-
95Ja
n-96
Jan-
97Ja
n-98
Jan-
99Ja
n-00
Jan-
01Ja
n-02
Jan-
03Ja
n-04
Jan-
05Ja
n-06
Jan-
07Ja
n-08
Jan-
09Ja
n-10
Jan-
11Ja
n-12
Jan-
13
Year
-Ove
r -Ye
ar %
Cha
nge
Mile
s D
riven
(bill
on m
iles)
Annualized Miles Driven by Month
Miles Driven % Change
Rising Raw Ingredient Cost Structure Requires Offsets Elsewhere: Logistics
15
Transportation of Grains, Soybeans and Products
16
Soybean Logistics Flows Multiple Markets and Routes
17
Potential Grain and Soybean Flows by Surplus and Deficit Regions
18
0
50
100
150
200
250
300
350
400
450
500
Mill
ion
Tons
CropYear
Crop Production by Surplus and Deficit Regions
SurplusDeficit
Grain and Soybean Supplies and Storage Response
19
0
5,000
10,000
15,000
20,000
25,000
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Mill
ion
Bus
hels
Grain Supply and Storage Capacity
Sep-1 Stocks Production Storage Capacity
Pace of Grain Storage Expansion Similar whether On Farm or Off Farm
20
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1986
/87
1987
/88
1988
/89
1989
/90
1990
/91
1991
/92
1992
/93
1993
/94
1994
/95
1995
/96
1996
/97
1997
/98
1998
/99
1999
/00
2000
/01
2001
/02
2002
/03
2003
/04
2004
/05
2005
/06
2006
/07
2007
/08
2008
/09
2009
/10
2010
/11
2011
/12
2012
/13
2013
/14
Mill
ion
Bus
hels
Crop Year (Sep-Aug)
December 1 Grain Storage Capacity by Type
On Farm Off Farm
Potential Grain and Soybean Flows by Surplus and Deficit Regions
21
0
10
20
30
40
50
60
70
80
1988
/89
1993
/94
2007
/08
2012
/13
2013
/14
Mill
ion
Tons
Crop Year
Grain and Soybean Net Shipment Position by Transport Region (million tons)
Upper Mississippi Ohio, Indiana, Michigan, Kentucky Northern Plains
DroughtYear
FloodYear
RecordExports
Drought Year
Railroad Grain Shuttle Loaders Filling the Map
22
Train Size Increasing, Especially Movements of Soybeans and Corn
23
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1995
/199
6
1996
/199
7
1997
/199
8
1998
/199
9
1999
/200
0
2000
/200
1
2001
/200
2
2002
/200
3
2003
/200
4
2004
/200
5
2005
/200
6
2006
/200
7
2007
/200
8
2008
/200
9
2009
/201
0
2010
/201
1
Shar
e of
Ton
nage
Crop Year
Grain and Soybean Tonnage Moved by Train Size1-25 26-50 51-75 76-100 >100
Share of Grain and Soybean Loadings by River Segment
24
Shift in barge loadings on inland river system: North to South
11%20%
19%
16%
13%
18%
30%
20%
24% 22%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Shar
e of
Vol
ume
Year
Upper Mississippi River (MSP toMissouri River)
Illinois Waterway
Mid-Mississippi River (MissouriRiver to Ohio River)
Ohio River
Lower Mississippi River (OhioRiver to Baton Rouge)
McClellan-Kerr Arkansas River
Baton Rouge to New Orleans
New Orleans to Mouth of Passes
13,00014,000
18,000
24,000
0
5,000
10,000
15,000
20,000
25,000
0
5,000
10,000
15,000
20,000
25,000
1956+ 1970s 1980s 1990s 2000s 2005s 2007+ 2011+ 20??
I II III IV V VI VII VIII IX
Twen
ty F
oot E
quiv
alen
ts (T
EUs)
Year and Generation
Generational Development of Container Vessels
Container Vessel Size Continues to Increase
25
Illinois the Load-Center for Containerized Grain and Soybean Exports
26
0
50,000
100,000
150,000
200,000
250,000
2001
/200
2
2002
/200
3
2003
/200
4
2004
/200
5
2005
/200
6
2006
/200
7
2007
/200
8
2008
/200
9
2009
/201
0
2010
/201
1
2011
/201
2
1,00
0 B
ushe
ls
U.S. Container Export Inspections by Crop
BARLEYSORGHUMWHEATCORNSOYBEANS
South America Infrastructure Influence
27
Brazil’s Modal Developments not Sitting Idle
28
6053
60
49
33
36 20
27
7 1120 24
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2010 2005 2010
Brazil United States
Soyb
ean
Mod
al S
hare
s
Soybean Modal Shares in Brazil and United States
WaterwaysRailwaysHighways
Impacts of Proposed Brazilian Soybean Corridors Can Make a Difference
29
Infrastructure projects been proposed to accommodate the reliable and efficient movement of soybeans
Realized improvements to the infrastructure estimated to reduce freight costs ◊ $40 per metric ton, or ◊ Between 20% and 30% depending on the origin.
Accounting for wait times between transportation events and export movement, the estimated cost savings could exceed ◊ 50%, or ◊ U.S. $55 to more than U.S. $60 per metric ton.
Such potential improvements bring Brazil nearly on par with the United States in terms of inland transport costs, effectively bolstering its farm industry.
Sustainable Transportation moving Soybeans to Market Position
30
Sustainability Looks Different When Factoring Modal Conditions
31
U.S. and Brazilian Soybean Production and Exports on Equalizing ◊ Both send about 60% of exports to China ◊ Each sends slightly varying volumes to
different markets
Brazil Modal Share becoming Comparable to U.S. ◊ Truck is the discrepancy – Brazil hauling 17
times further than U.S.
Brazil Highly Dependent on Truck to Final Market Position ◊ Trucking in Brazil alone:
Generates one-half of total ton-miles Consumes more than three-quarters of
fuel burned Emits nearly 90% of all CO2
Represents 71% of all fuel spills
Compared to the U.S., Brazil: ◊ Consumes twice as much fuel ◊ Emits four times as much CO2 ◊ Spills nearly double the fuel
0
50
100
150
200
250
United States Brazil
Mill
ion
Gal
lons
Fuel Consumption Moving Soybeans to Market Position by Mode
BargeRailTruck
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
United States Brazil
Mill
ion
Tons
CO
2
Fuel Emissions Moving Soybeans to Market Position by Mode
BargeRailTruck
Summary and Conclusions
32
Global Summary
33
The Global Age is Readily Apparent ◊ The world is shrinking ◊ Shipping options expanding ◊ The U.S. is not as pivotal
Developing Countries Slowly Coming of Age ◊ Expanding infrastructure ◊ Port developments ◊ Still a ways to go however
Economy Driving Infrastructure Issues ◊ Much work to be done ◊ Funding issues to abound ◊ Renewed efforts of collaboration required
Consistent message with meaningful facts
The Shifting Nexus of Global Agriculture
Investing in Agricultural
Infrastructure
Ken Eriksen Senior Vice President
901-766-4463 [email protected]
July 16, 2013
Prepared for