August 26, 2008

 

 

An expected large harvest is expected to throw up inefficiencies in US grain logistics as giant piles of grains would be lost due to bottlenecks and improper storage, experts said.

 

The US is expecting its second largest corn crop and fourth largest soy crop in history but a lack of rail cars, outdated dam systems and shortage of grain containers in sea-going vessels is affecting US capability to transport grains to international markets.

 

Mark Hodges, the executive director of the Oklahoma Wheat Commission, said US grain managers are finding rail cars in short supply as the huge harvest is causing strains in the system.

 

Unlike previous years when the harvested grains are simply left on the ground exposed to sun, rain and rats, high grain prices nowadays are prompting more to seriously consider the logistics issues. 

 

Agribusiness groups worry the bottlenecks could hurt the US standing as a global food provider as other nations, such as Brazil and Argentina compete for the same market, especially when such delays add to the cost of the grains.

 

In 2006, an estimated 1 billion bushels of grain was stored outside or in improvised shelters in Iowa, Illinois and Indiana, due to rail delays, adding an estimated US$107 million to US$160 million that year to the cost of transporting it, according to USDA figures.

 

This accounts for 1 percent of the combined US$13.8 billion value of corn and soy exports in 2006.

 

Barge delays alone added an average US$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.

 

The added costs of these delays and the costs of upgrading infrastructure to solve these delays, meant US grain prices could be priced out of the market, experts worried.

 

The problem may worsen in future years as infrastructure ages and exports expand but fixing the bottlenecks will take billions of dollars in investment over several years.

 

However, 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, according to USDA economist Marvin Prater.

 

But storing grain outside meant the cargo must be "double handled," being dumped once outside, then recollected to be loaded into a silo and then a rail car, adding to grain costs.

 

As the price of doing nothing become apparent, the Association of American Railroads and farm industry groups are backing legislation that would offer tax credits for investments in freight rail expansion. The group estimates it will cost about US$148 billion to expand rail lines over the next 30 years to handle increased demand but railroad companies can only afford to fund about 70 percent of that.

 

Congress has authorized the Army Corps last year to update outdated locks and dams along the Mississippi but yet to approve funding for the project, which is estimated to cost US$2.2 billion over more than 20 years.

 

Outdated dams added about 50 hours of travel time along the upper stretch of the Mississippi, racking up an estimated US$725.6 million in extra costs along the Illinois and Mississippi Rivers between 1996 and 2005.

 

Ports also suffer from bottlenecks as imports, particularly those from China, have fallen, depriving exporters of empty containers to ship to grain markets. This meant exporters have to pay more to ship their grains out, traders said.