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  • By Lynda Kiernan-Stone, Global AgInvesting Media

Massive New Panama Canal Ships Could Lower Costs for U.S. Grain Producers

The Panama Canal is undergoing its largest upgrade since it was built in 1914. The $5.3 billion project will add a third set of locks and a new channel, and will widen and deepen the canal allowing for the passage of the largest cargo ships called SuperPanamax.

The biggest beneficiaries from these upgrades will be U.S. East Coast and Southern ports, but next in place to benefit are Midwest producers of bulk exports, such as grain and soybeans, according to a 2013 report by the U.S. Department of Transportation.

U.S. grain handlers sell massive volumes of grain including soybeans, wheat, sorghum, and corn to Asian markets, and the Soy Transportation Commission estimates that the expanded canal will allow shippers to increase the amount of soybeans going through the canal from 2.1 million bushels of soybeans to 2.6 million bushels while lowering freight costs by 20% to 35 cents per bushel.

There is a caveat, however. The canal expansion will only help those farmer who have access to river transportation allowing them to ship their crops by barge to Louisiana where it can be loaded on a SuperPanamax ship – such as farmers in Ohio, Indiana, Illinois, and Iowa.

But the benefits could be felt as far as Wichita, Kansas. While there are no ports in the state, there is the port of Catoosa in the Verdigris River in Tulsa, and from there, the McClellan-Kerr Arkansas Navigation System connects to the Arkansas River and eventually to the Mississippi River and multiple ports. If transportation by water is possible, it would certainly present an advantage to farmers and handlers, considering a 12-barge convoy of 720,000 bushels of grain can be handled by a crew of eight, greatly reducing freight costs.

The canal expansion in Panama will definitely have a ripple effect along the entire value chain, resulting in an increase in international commerce. But with the level of port congestion, there may be a delay as U.S. ports finalize the investments needed to complete the infrastructure upgrades necessary to handle the SuperPanamax ships.

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