River flow, train rates and the challenge of building new infrastructure affect how the United States fares in export markets.

It's a basic challenge of Marketing 101: getting the buyer what he wants, when and where he wants it.

Over the past few years, that challenge has eased a bit for mid-continent grain producers, especially for north and south shipping. With the advent of NAFTA (the North American Free Trade Agreement), border-to-border rail lines have built a lot of trackage and infrastructure to service shippers to and from Canada and Mexico.

"Rail service has improved over the past few years," agreed Bruce Hanson, MFA vice president for transportation and distribution. "Rail companies have invested heavily in improving their facilities, but in the process they've gotten more independent.

"The quality of service depends on the railroad," Hanson added. "The main rail lines are looking for more efficient ways to service local and regional areas, and that sometimes means cutting back on services. Short lines and regional railroads play a big role, but the price of shipping is still controlled by the big lines, which charge for access onto their systems."

Rails, rivers and roads
As railroads have consolidated, the big lines have gotten bigger--and fewer. Two railroads (the Union Pacific and the Burlington Northern-Santa Fe) now carry virtually all of the east-west rail freight west of the Mississippi River. Ten years ago, MFA had 30 rail contracts. Today, the cooperative has 10 contracts.

"Terminal switching fees are the biggest pain we deal with right now," Hanson continued. "Railroads are hiking switching charges, bogging things down with paperwork and charging the short lines more for access. Any business is going to charge what the market will bear

and railroads are no exception. But where we're concerned, they may be shooting themselves in the foot. In many areas, rail costs now are on a par with trucking--or even at a slight premium.

"We're fortunate in Missouri. Most of our feed grain is consumed here or in the poultry feeding markets of Missouri, Arkansas, Kansas and Oklahoma," Hanson added. "Those markets are within trucking distance of where most grain is produced. Trucks are the least efficient and most costly way to move freight. However, they are the most reliable, especially for relatively short hauls."

Having access to both river and rail transportation should be a blessing, but sometimes that blessing is heavily disguised. AGRIServices of Brunswick sits on the Missouri River and also alongside the Norfolk Southern rail line.

"Railroads have the infrastructure and ability to do a better job than they sometimes do," said Jerry Young, assistant manager of the Brunswick facility. "We're limited to a siding with a 27-car capacity here, and we have siding for additional cars. But we're still at the mercy of the switching crew out of Moberly.

"During peak seasons in spring and fall, when we are unloading both river barges and rail cars, we are overtaxed both in terms of manpower and facilities," Young added. "And when we cannot get cars loaded or unloaded on time, demurrage [the charge made by railroads for cars kept longer than a minimum time] gets to be a big factor."

Brunswick is a major distribution center, both for grain going out and for fertilizer coming in.

"This location is essential to the distribution of fertilizer to a large area of north-central Missouri's cropping country," said Young. "A lot of product comes out of here to service outlets over a wide area. At harvest time, the flow reverses. If we cannot get railcars and river barges in and out, that bottleneck backs things up pretty badly.

"We're looking at the feasibility of putting in enough track to load out unit trains here," he added. "That would take a sizeable investment, but we'd attract more favorable attention by the railroad. Still, making that work would depend on our ability to get the material in and out."

The situation is equally unhappy on the Missouri River. For a year or more, Brunswick has had to receive and ship barges loaded to only a 7-foot, 6-inch draft, rather than the normal 9 feet, because of low flow on the river. Persistent drought in western states, aggravated by what shippers see as the U.S. Army Corps of Engineers' less-than-prudent management of water releases from upriver reservoirs, have kept the Missouri River at less than a 9-foot navigational depth for months now.

"We had a total of 31 bargeloads of fertilizer ordered for this spring," said Kevin Holcer, Brunswick's marketing and distribution manager, in early April. "So far, we have received only eight barges, and this is the peak season for fertilizer.

"When we can, we load fertilizer barges with outgoing grain, although each barge is about 4,000 bushels short of a full load," he added. "We like to give the barge company a back-haul; we're concerned about keeping barge companies in business. They've had 2 or 3 tough years.

"It's the same thing with barges coming upriver," Holcer noted. "We have to load barges to the 7-foot-6 draft at the Gulf, which increases our freight cost substantially."

Going global
Last year, Brunswick loaded out 66 river barges, each with 45,000 bushels of grain, virtually all of it destined to the Gulf of Mexico and from there to export markets. With barges loaded to a shallower draft, that was about 300,000 bushels less than could have been hauled at a 9-foot draft.

Out of proportion to their share of total marketings, foreign sales are the price makers in the grain market. Consider corn. About 23 billion bushels of corn are produced globally, and only 12 percent of that total is exported. But it's a tail that wags a big price dog. Aside from widespread drought, nothing moves the midsummer corn market like the announcement of a major overseas purchase.

With about 60 percent of all corn exports, the U.S. has the undisputed biggest share of exports. But two competitors are closing the gap. Argentina for years has been in second place. Surprisingly, China has rapidly moved into third place as a net corn exporter and is expanding its share of world sales rapidly.

It's no coincidence that both Argentina and China have invested heavily in grain handling and shipping infrastructure. The Rio de la Plata estuary in Argentina has been developed to allow ocean-going freighters to be loaded miles inland from the Atlantic coast. Since 1996, China has invested about $15 billion

on ports, harbors and inland waterways. Argentina and China apparently have learned the lessons of Marketing 101.

By contrast, the U. S. Army Corps of Engineers estimates the cost of overhauling the seven southernmost locks and dams on the Mississippi and Illinois Rivers at $1.2 billion--over a 20-year period.

After NAFTA
For U.S. grain producers, the North American Free Trade Agreement has worked better than most people supposed it would. Major railroads have invested heavily in Canada-to-Mexico trackage and infrastructure and those investments appear to be paying off.

Canada, long a major trading partner, has steadily increased imports from the United States since NAFTA. In fact, Canada last year bypassed Japan as the top buyer of American ag products.

But the real star of the show is Mexico, whose imports of U.S. ag products have grown by more than $1.5 billion since NAFTA came into being. In fact, Mexico last year ranked No. 1 as a buyer of U.S. cotton and second only to Japan as a purchaser of U.S. corn.

"Our main foreign buyers are now Canada, Japan and Mexico, in that order," said Mark Hitt, administrator of international marketing, Missouri Department of Agriculture. "Mexico's purchases from the U.S. are up 2 percent from the last fiscal year and Mexico's buying is projected to continue its increase."

Our south-of-the-border neighbor is a major soybean buyer, also; now our fourth biggest soybean customer.

"Mexico's demand for soybeans and soy products is steadily increasing," said Oscar Gonzalez, Missouri trade representative stationed in Mexico. "Mexico needs a steady volume of soybeans for both animal feed and for human food."

Virtually all of it comes from here. U.S. producers now supply 92 percent of the whole soybeans and 100 percent of the soybean meal imported by Mexico.

And most of Mexico's imports from the U.S. move by rail or truck. In fact, overland freight is not only faster than products shipped across the Gulf of Mexico, it's cheaper. Once a freighter docks at Progreso or Vera Cruz (major Gulf coast ports), there's still a long haul to processors in central Mexico.

Having such a growing demand right on our southern border may be one of the brighter stars in our export firmament. State and federal governments and environmentalists continue to haggle over proposed management changes to the river system. Improvements on both the Missouri and Mississippi are stymied by wrangling at all levels. If the river situation does not improve, barge shipping rates may go up and river traffic go down.

Can railroads take up the slack? As Bruce Hanson said, rail service has improved from what it was a few years ago when major railroads misplaced entire trains. But from the point of view of most shippers, railroads could do better.

"As unreliable as railroads sometimes are, at least they run every day," said Jerry Young.