Dredging down the Mississippi may lift crop prices up north

A new project to dredge the Mississippi River near the Gulf of Mexico could boost local prices for corn and soybeans in Minnesota, but when and by how much are a matter of debate.

The U.S. Army Corps of Engineers announced last week it will devote $85.4 million to deepening the mouth of the river to 50 feet, enabling oceangoing ships to load more grain at terminals upriver.

That should drive down the cost of shipping and lift prices that elevators in the Midwest offer to farmers for goods.

The project, which could start this fall, would open a 50-foot channel from the Gulf of Mexico to Vacherie, a town just upriver from New Orleans. Nine of the 14 grain export terminals at the end of the river — including sites owned by CHS Inc. and Cargill — are on that stretch of the river.

The CHS Myrtle Grove terminal is the southernmost grain-loading facility on the river. Sarah Fakhari, the manager of that operation, said the shipping bottleneck is the Southwest Pass at the very mouth of the river, where ocean freighters enter a channel and the water is typically 47 feet deep. The depth of the pass determines how deep the water is at docks for terminals farther upriver.

"We're dredged to the pass right now — we're dredged to 47 feet deep," Fakhari said. "We don't need more because the pass can't handle more."

Assuming grain exporters take full advantage of the deeper channel, ships loading for export at terminals will be able to haul 2.9 million tons of soybeans instead of 2.4 million tons, a 21% increase, said Mike Steenhoek, director of the Soy Transportation Coalition.

The cost of shipping a bushel of soybeans from a Gulf export terminal would drop by 13 cents in that scenario, the Soy Transportation Coalition estimates, in part by driving more competition. The group projected that basis — the term for the difference between the price a farmer receives for grain at the local elevator and the market value established by the Chicago Board of Trade — would narrow across the Midwest.

Whether CHS decides to deepen the river at its terminal in response to the deeper channel is to be determined, said John Griffith, senior vice president for global grain marketing at the Inver Groves Heights-based ag giant. Exporters must consider whether harbors at overseas destinations can handle a 50-foot draft, Griffith said, and the river depth fluctuates with rainfall and silting. For instance, right now the Southwest Pass is only 42 feet deep.

In western Minnesota, Doug Wilson, grain division manager at the Wheaton-Dumont Co-op in Traverse County, expressed some caution about the potential effects. Soybean growers in that part of the state have been hammered by basis since the trade war with China started in 2018. Trains to the Pacific Northwest mostly stopped carrying grain for export to Asia and elevators had to pay railroads to carry grain to a terminal in Savage, south of the Twin Cities, or even to St. Louis, for loading onto barges to go down river.

"Will it improve basis to [sellers] like us, that can ship to Savage?" Wilson said. "I don't know what that number is."

Basis in Traverse County could narrow by as much as 40 cents if the Mississippi River were deepened near the Gulf, the Soy Transportation Council estimates, and Minnesota farmers would earn an extra $49 million per year on their soybean crops. The group said soybean growers in 31 states would annually make an additional $461 million on their crop with the reduced shipping costs.

Those estimates sound optimistic, said Kevin Horn, a Minnesota-based merchandising manager for Gavilon, one of the largest grain handlers in North America.

More shipping capacity will help grain prices, he said, but he's not sure about 10 to 15 cents per bushel for soybeans. Dredging will be most helpful to the freight companies shipping out of New Orleans to overseas markets, he said.