Panama Canal: Wider, deeper, faster

Panama Canal: Wider, deeper, faster

Expanded Panama Canal offers benefits for U.S. farmers and everyone else who exports grain.

For years, Tim Gottman has hauled his soybeans 35 miles to the ADM processing plant in Quincy, Ill., because it was the best market. Someday he may take them a few miles farther to the Ursa Farmers Co-op elevator in Canton, Mo., where they will be sold down the Mississippi River for export.

That is his hope once a wider, deeper and faster Panama Canal opens this spring and offers farmers attractive prices to deliver their grain and soybeans into the export pipeline.

“All of the farmers up here are hoping so,” Gottman says of the potential for a new market. “Moving our product is important. The more we can get through the Panama Canal should be a benefit to us.”

The Panama Canal expansion is nearly complete. The latest announcement from the canal authority put the level of progress over 96%. (Photo: Viaggiare/Thinkstock)

After a number of delays, the expanded canal should be open soon. At that time, ships will be able to carry 15,000 to 20,000 tons more grain than they do now and move it more quickly to Asian markets. That will lower freight costs, and hopefully, those cost savings will be passed back to farmers in the form of stronger basis bids.

Slow start

No one is expecting immediate benefits.

“It takes time for all of that to take effect. I can’t imagine in one month we are going to see a major difference. But hopefully, in two to three years, we will see a major difference,” says Gottman, who with other family members farms about 3,000 acres near Monroe City, Mo.

A number of factors will likely mean a slow ramp-up in business, the leading one being ample supplies of lower-priced crops in other countries. But preparations continue here as the few cents per bushel saved on shipping will help the U.S. compete in global trade. The federal government is spending money to dredge ports and harbors, maintain locks and dams on the rivers, and strengthen roads loaded with trucks.

“Once the canal opens, you could say we are ready to go,” says Jay O’Neil, senior agriculture economist at Kansas State University’s international grains program. “If you put 15,000 to 20,000 more tons on a ship, you are going to get a freight savings. Immediately, there is a freight savings of about $1.50 a ton.

 “The expanded Panama Canal will allow quicker transit times and thus save money for vessel owners and charterers,” adds O’Neil.

The Ursa Farmers Co-op just added 1.2 million bushels of grain storage, for a total of 15.2 million, in part because owners believe the capacity will be needed as more grain is shipped through the expanded canal. The addition also will help the elevator operate more efficiently and take advantage of price fluctuations in the barge market.

“We built storage to not be so dependent on barge arrivals and not have to pay the high-priced freight,” says Roger Hugenberg, Ursa general manager. “It should create new demand for corn. You would think there would be a competitive advantage to load bigger boats and send them through the canal. I think that is what is coming.”

Inland transportation

Mike Steenhoek, executive director of the Soy Transportation Coalition, says for U.S. farmers to take full benefit of a wider and faster canal, the inland roads, bridges and river systems need to be maintained to allow trucks and barges to move grain to ports to load the bigger ships.

“The efforts down in Panama certainly contributed to an increased motivation to do something on our infrastructure for surface and for maritime,” he says.

Late in 2015, Congress passed a number of bills that will devote funds to such projects.

“This whole debate about dredging, harbor maintenance and channel widening, and increased funding for those activities — the Panama Canal expansion was certainly a key motivator behind that,” Steenhoek says.

While the wider canal is expected to draw crops from deeper inland to fill more barges headed for the Gulf, farmers outside of that area should also benefit. Grain processors, feed mills, ethanol plants and other non-export users will have to compete with a stronger river market and that should mean higher bids for all grain.

“When you have that type of situation, that has a positive effect on the basis,” says Steenhoek.

Loading 90,000 metric tons on a ship is doable now in the United States, but the vessels had to go around Cape Horn at the tip of South America.

While loading bigger ships can cut costs, O’Neil is still skeptical about who will take them. Not all countries can handle big ships either because their ports are not deep enough or they lack sufficient storage for the grain.

“I can put 80,000 tons on a ship tomorrow, but the poor guy in Japan will not have a port to accept it,” he says. “There are about five or six ports in the world that can take 90,000 and 100,000 tons. China has four. China will be the primary destination that can avail itself of the bigger ships.”

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