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Cash Market Moves
Tuesday, January 14, 2020 2:18PM CST
By Mary Kennedy
DTN Cash Grains Analyst

Late on Dec. 20, 2019, President Donald Trump signed into law the 2020 spending bills. Contained in the spending package for fiscal 2020 was $7.65 billion for the civil works mission of the U.S. Army Corps of Engineers (USACE), which oversees the inland waterways system and port dredging. That amount is $652 million above the current spending level and $2.69 billion more than the president had requested earlier this year, according to the Waterways Council (WCI), an industry-funded group that advocates for waterways spending.

The bill also includes another provision sought by the waterways industry, which is full use of the estimated receipts of the Inland Waterways Trust Fund (IWTF) that includes additional prior-year revenues to produce a strong investment level of $317 million for spending on needs of the antiquated inland waterways system during the next fiscal year, according to WCI.

The IWTF was established to help underwrite the costs of construction and major rehabilitation of the nation's inland waterway system. "Funds are generated via the Inland Waterways Tax: a 29 cent per gallon assessment on diesel fuel used on 27 stretches of the country's inland waterway system. The 12,000 miles of fuel taxed waters include most of the nation's largest rivers: the Mississippi, Ohio, Illinois, the lower Missouri, and the Gulf and Atlantic Intracoastal waterways," notes the Soy Transportation Coalition (STC) on their website.

According to the STC, the fund annually generates approximately $110 million to $120 million per year via the IWTF. These funds are then matched with revenue from the U.S. Treasury. The total $220 million to $240 million is directed toward construction and major rehabilitation projects. The U.S. Treasury assumes 100% of the costs of operations and maintenance.

The American Association of Port Authorities (AAPA) praised the funding bills, saying the $225 million allocated for port infrastructure will be spent on improvements to gate operations, roads and rail within and connecting ports, ship berths and cargo operations.

"Ultimately much more is needed, but this package reflects the association's ongoing priorities for improving the critical infrastructure that is represented at America's seaports and will go a long way to enhancing trade and transportation across the nation," said AAPA President Chris Connor in a statement.

AAPA also noted the Corps of Engineers received a 12% increase in spending for deep-draft dredging projects and got money for a regional demonstration program to respond more effectively to critical national dredging requirements along the Gulf coast between Louisiana and Alabama.

Here is a link to a story I did on the importance of non-flood related dredging in the Lower Mississippi River. A study by the STC shows doing so would have a positive impact on farmers who haul soybeans and other grains to river terminals that eventually send them down the Mississippi to the Gulf of Mexico for export: https://www.dtnpf.com/… .

A DROP IN THE INFRASTRUCTURE BUCKET?

The spending package includes $75.3 million to begin construction of a new Soo Lock. It will take seven to 10 years and $1 billion to build another lock, and this money will cover the first year of work. "This would be the first time in decades that construction of a new lock at the Soo has received funding appropriated by Congress. Construction of a new lock was first authorized in 1986 and again in 2007, but leaders in Washington then were unable to get funding for the construction," said Congressman John Moolenaar, R-Mich., on his website. Congressman John Moolenaar is Michigan's senior member of the House Appropriations Committee and has been a strong advocate for construction of the Soo Locks.

In August 2019, the U.S. Department of Agriculture (USDA) released a significant new study that quantifies the cost-savings and competitive advantages that would accrue from investing in long-delayed improvements to the inland waterways locks and dams on the Upper Mississippi and Illinois River system: https://www.ams.usda.gov/… .

This study is a warning that failure to modernize those and other locks and dams, "increases costs of U.S. farm exports and helps Brazilian exporters close the cost gap with the United States." The study also pointed out what has been obvious for years; that U.S. barge traffic delays on the Mississippi and other rivers continue to rise as a result of growing lock and dam malfunctions. The added costs associated with those delays are ultimately passed on to shippers, especially farmers. That means farmers will get a lower price for their commodities shipped on the inland waterways system.

The Mississippi River System is America's primary inland waterways system. It comprises the Mississippi, Arkansas, Illinois, Ohio and Tennessee Rivers, and Gulf Intracoastal Waterway. "This extensive waterway system feeds exports from grain elevators from Baton Rouge through New Orleans, to Myrtle Grove, Louisiana. This region handles 57% of U.S. corn exports in volume (valued at $4.8 billion) and 59% of U.S. soybean exports ($12.4 billion), as well as 55% of soybean meal exports and 72% of distiller's dried grains exports," said USDA in the study results.

The study noted without "consistent, predictable funding, the grain and soybean export draw area around the waterways system could shrink from an average of 150 miles, currently, to as little as 75 miles under a constrained scenario, as the cost to ship on the river increases." For corn, delays on the Mississippi River could have up to a 24 cent per bushel impact, while impact to soybeans could be up to 25 cents per bushel.

The river's infrastructure continues to deteriorate and major flood events like in 2019 put even more stress on locks and dams. Most of the locks and dams were built in the 1930s with a life expectancy of maybe 50 years. In March 2019, the U.S. Army Corps of Engineers estimated the backlogged maintenance cost for locks and dams of the Mississippi and Illinois rivers is more than $1 billion. https://www.mvr.usace.army.mil/… .

There have been many lock and dam failures recently due to barges striking them during flooding or heavy ice events, but also due to structural failures because of old age. The Corps has been relentless in making repairs on top of normal maintenance, but eventually that may not be enough to keep those locks and dam functional.

A major failure at any of the locks and dams would paralyze commerce along the river. The U.S. government needs to get serious about properly funding the waterways infrastructure to prevent that from happening.

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

Follow her on Twitter @MaryCKenn

(BE/CZ)


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