Lock failure on rivers would have major impact on corn and soybean producers

Lock failure on rivers would have major impact on corn and soybean producers

COLUMBIA, Mo. – Lock failure on either the Mississippi or Illinois rivers carries with it the potential economic damage that could exceed more than half a billion dollars for corn and soybean producers, according to a University of Missouri study.

The study, funded by the Illinois Chamber of Commerce, assesses the impact of the failure of either of two locks: Lock 25, just north of St. Louis, on the Mississippi River or the LaGrange Lock on the Illinois River.

More than 60 million tons of goods valued at more than $29 billion crossed these locks in 2005, said Seth Meyer, agricultural economist at the MU Food and Agricultural Policy Research Institute.

Barges provide a lower cost mode of transportation for a wide range of commodities. Shipping the same 2005 commodity volumes to the same destinations would cost an additional $580 million by rail and $1.6 billion by truck, according to figures in the study.

A 90-day lock failure from October through December of 2005 on either river would have had a $219 million to $585 million impact on corn and soybean producers alone, depending on rail rate behavior, the study indicates. These figures are based on no rail rate increase at the low end of losses to a 25 percent increase in rail rates at the high end.

The study considers only the impact on corn and soybean movement on the Upper Mississippi and Illinois rivers, which accounts for about 44 percent of total volume transported annually through the two locks.

“We looked at everything that is crossing these two locks, its origins and destinations, and did a simple cost analysis to see how much more it would cost to ship by train or by truck,” Meyer said. Both locks in the study were built in 1939 and are maintained by the U.S. Army Corps of Engineers, he said.

Alternative transportation rates assumptions may understate the change in cost for other transportation modes, Meyer said.

The overall economic impact of a lock failure goes beyond added immediate costs for alternative transportation of grain, he said.

“If you increase the transportation cost from Iowa to the Gulf, you affect the price of all the grain produced in the region, not just that flowing on the river,” Meyer said.

“When you shut off the river, you push down prices in Iowa for corn and push prices up at the Gulf,” he said.

“Lower prices in Iowa will increase demand and some producers will store, anticipating that the river will reopen,” Meyer said.

.Time is another factor in considering the economic impact of lock failure. Shipping on the Mississippi River is much more seasonal than on the Illinois River. Fall would be a very bad time for agricultural commodities if a lock failed.