The Shifting Nexus of Global Agriculture

Investing in Agricultural

Infrastructure

Ken Eriksen

Senior Vice President July 16, 2013

Prepared for

Charting the Course

Impact of Infrastructure on U.S. Agriculture

Key Agricultural Transportation and Infrastructure Issues

Transportation of Grains, Soybeans and Products

South America Infrastructure Influence

Sustainable Transportation

2

Impact of Infrastructure on U.S. Agriculture

3

Industries Fully Dependent on Soybeans, Grains and Related Products

To the Second Order Consumers in the Supply Chain: ◊ Delivery of commodities from farming of significant importance to

the U.S. economy ◊ 1.5 million jobs, ◊ More than $352 billion in U.S. output, ◊ Over $41 billion in labor earnings, and ◊ Greater than $74 billion in value added on the U.S. economy.

4

Infrastructure Framework

5

Infrastructure Problems = Inefficiencies

Inefficiencies = Lower Effective Transport Capacity

Lower Effective Transport Capacity = Higher Rates

Higher Rates = Lower Farmer Returns

Key Transportation and Infrastructure Issues

6

Key Infrastructure Issues

Infrastructure Project Description

Cumulative Outlays

($ millions) Inland Navigation Lock and Dams

Mississippi River Lock 20, 1,200 foot Lock Addition + Lock & Dam Rehabilitation

$311.1

Mississippi River Lock 25, 1,200 foot Lock Addition + Scour Repairs & Rehabilitation

$429.9

Ohio River Olmsted Lock & Dam Construction and Lock 52 and Lock 53 Removal

$2,044.0

Ohio River Markland Lock Major Rehabilitation

$35.8

Illinois River LaGrange Lock Addition

$320.9

Illinois River LaGrange Lock Rehabilitation

$78.8

Channel Dredging by Army Corps of Engineers District

Galveston $1,230.8 Mobile $677.8 New Orleans $2,322.5 Portland $288.0

7

Modal Developments beyond the U.S. Borders: Panama Canal

8

DimensionCurrent

(ft)3rd Lock

(ft) ChangeDraft 39.5 60.0 52%

Width 110.0 180.0 64%Length 1,000.0 1,400.0 40%

Ship Length 965.0 1,265.0 31%

Soybean Planted

Acreage Impact

70 miles ◊ 26.7 mil.

111 miles ◊ 27.9 mil.

161 miles ◊ 49.6 mil. (two-thirds U.S.)

Cost Savings to Soybean and Grain Users Derived From Infrastructure Improvements

9

Improved reliability in the delivery time of soybeans and grains

Reduced travel time and transit costs

Improved efficiency at ports for using larger, more efficient ocean going vessels

Potential re-assignment of rail traffic to barge traffic for freight currently utilizing rail to avoid deficiencies at key lock and dam facilities

Annual Summary Investment Outlays & Returns for Soybeans & Grain Industries

10

Description Impact Type

Dollar Value

(million)

Economic Impact

Earnings (million)

Output (million)

Employ-ment

Value-Added

(million) Infrastructure Outlays

Construction

$467.2

$400.8

$1,176.5

7,927

$615.2

Supply Chain Impacts

Cost Savings

$145.9

$8.9

$40.3

185

$15.5

Long-Term Problem on the Rivers

11

Army Corps of Engineers Project Completion Schedule for Select Locks

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

L/D 25 Upper Miss Dam

LaGrange

ILL WW Thomas O’Brien L/D

Mel Price Upper Miss

Year

Army Corps of Engineers Project Completion ScheduleMajor Rehabilitation

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

Olmsted L/D Construction

Kentucky Lock Addition

L/D 25 Upper Miss 1200’ Lock Addition

LaGrange 1200’ Lock Addition

L/D 22 Upper Miss 1200’ Lock Addition

L/D 24 Upper Miss 1200’ Lock Addition

Year

Army Corps of Engineers Project Completion ScheduleNew Construction

Deteriorating Infrastructure Situation

12

Backlog of Lock and Dam Repairs and Emergency Repairs ◊ Industry needs reliability through infrastructure maintenance ◊ Not full solution, clearing deferred maintenance buys down risk of

catastrophic event or closure until authorized major rehabilitation or new construction can be appropriated and completed

◊ Diversion to other modes substantial 1 Barge = about 1,600 tons or 53,000 bushels 1 Railcar = about 110 tons or 3,670 bushels 1 Truck / Container = about 26 tons or 870 bushels So, One 15-barge tow on Illinois River is equivalent to 216

rail cars or 1,050 semi-trucks If 90-day closure at LaGrange Lock during peak soybean

harvest movement 341 barge loadings diverted as 5,000 rail carloads or 21,000

truck loads

Extreme Wall of Water Not all Rivers Created Equal

13

-20

-10

0

10

20

30

40

50

60

Jan-

11

Feb-

11M

ar-1

1

Apr

-11

May

-11

Jun-

11

Jul-1

1

Aug

-11

Sep-

11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb-

12M

ar-1

2

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Sep-

12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Feb-

13M

ar-1

3

Apr

-13

May

-13

Jun-

13

Feet

Daily

Daily Mississippi River Gage: Memphis

Source: Army Corps of Engineers

Nearly a 6-Story Building

Reduced Driving, Fewer Miles & Improved Efficiencies = Less Highway Funding Base

14

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

1,500

1,700

1,900

2,100

2,300

2,500

2,700

2,900

3,100

3,300

3,500

Jan-

83Ja

n-84

Jan-

85Ja

n-86

Jan-

87Ja

n-88

Jan-

89Ja

n-90

Jan-

91Ja

n-92

Jan-

93Ja

n-94

Jan-

95Ja

n-96

Jan-

97Ja

n-98

Jan-

99Ja

n-00

Jan-

01Ja

n-02

Jan-

03Ja

n-04

Jan-

05Ja

n-06

Jan-

07Ja

n-08

Jan-

09Ja

n-10

Jan-

11Ja

n-12

Jan-

13

Year

-Ove

r -Ye

ar %

Cha

nge

Mile

s D

riven

(bill

on m

iles)

Annualized Miles Driven by Month

Miles Driven % Change

Rising Raw Ingredient Cost Structure Requires Offsets Elsewhere: Logistics

15

Transportation of Grains, Soybeans and Products

16

Soybean Logistics Flows Multiple Markets and Routes

17

Potential Grain and Soybean Flows by Surplus and Deficit Regions

18

0

50

100

150

200

250

300

350

400

450

500

Mill

ion

Tons

CropYear

Crop Production by Surplus and Deficit Regions

SurplusDeficit

Grain and Soybean Supplies and Storage Response

19

0

5,000

10,000

15,000

20,000

25,000

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Mill

ion

Bus

hels

Grain Supply and Storage Capacity

Sep-1 Stocks Production Storage Capacity

Pace of Grain Storage Expansion Similar whether On Farm or Off Farm

20

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1986

/87

1987

/88

1988

/89

1989

/90

1990

/91

1991

/92

1992

/93

1993

/94

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

Mill

ion

Bus

hels

Crop Year (Sep-Aug)

December 1 Grain Storage Capacity by Type

On Farm Off Farm

Potential Grain and Soybean Flows by Surplus and Deficit Regions

21

0

10

20

30

40

50

60

70

80

1988

/89

1993

/94

2007

/08

2012

/13

2013

/14

Mill

ion

Tons

Crop Year

Grain and Soybean Net Shipment Position by Transport Region (million tons)

Upper Mississippi Ohio, Indiana, Michigan, Kentucky Northern Plains

DroughtYear

FloodYear

RecordExports

Drought Year

Railroad Grain Shuttle Loaders Filling the Map

22

Train Size Increasing, Especially Movements of Soybeans and Corn

23

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1995

/199

6

1996

/199

7

1997

/199

8

1998

/199

9

1999

/200

0

2000

/200

1

2001

/200

2

2002

/200

3

2003

/200

4

2004

/200

5

2005

/200

6

2006

/200

7

2007

/200

8

2008

/200

9

2009

/201

0

2010

/201

1

Shar

e of

Ton

nage

Crop Year

Grain and Soybean Tonnage Moved by Train Size1-25 26-50 51-75 76-100 >100

Share of Grain and Soybean Loadings by River Segment

24

Shift in barge loadings on inland river system: North to South

11%20%

19%

16%

13%

18%

30%

20%

24% 22%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Shar

e of

Vol

ume

Year

Upper Mississippi River (MSP toMissouri River)

Illinois Waterway

Mid-Mississippi River (MissouriRiver to Ohio River)

Ohio River

Lower Mississippi River (OhioRiver to Baton Rouge)

McClellan-Kerr Arkansas River

Baton Rouge to New Orleans

New Orleans to Mouth of Passes

13,00014,000

18,000

24,000

0

5,000

10,000

15,000

20,000

25,000

0

5,000

10,000

15,000

20,000

25,000

1956+ 1970s 1980s 1990s 2000s 2005s 2007+ 2011+ 20??

I II III IV V VI VII VIII IX

Twen

ty F

oot E

quiv

alen

ts (T

EUs)

Year and Generation

Generational Development of Container Vessels

Container Vessel Size Continues to Increase

25

Illinois the Load-Center for Containerized Grain and Soybean Exports

26

0

50,000

100,000

150,000

200,000

250,000

2001

/200

2

2002

/200

3

2003

/200

4

2004

/200

5

2005

/200

6

2006

/200

7

2007

/200

8

2008

/200

9

2009

/201

0

2010

/201

1

2011

/201

2

1,00

0 B

ushe

ls

U.S. Container Export Inspections by Crop

BARLEYSORGHUMWHEATCORNSOYBEANS

South America Infrastructure Influence

27

Brazil’s Modal Developments not Sitting Idle

28

6053

60

49

33

36 20

27

7 1120 24

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2010 2005 2010

Brazil United States

Soyb

ean

Mod

al S

hare

s

Soybean Modal Shares in Brazil and United States

WaterwaysRailwaysHighways

Impacts of Proposed Brazilian Soybean Corridors Can Make a Difference

29

Infrastructure projects been proposed to accommodate the reliable and efficient movement of soybeans

Realized improvements to the infrastructure estimated to reduce freight costs ◊ $40 per metric ton, or ◊ Between 20% and 30% depending on the origin.

Accounting for wait times between transportation events and export movement, the estimated cost savings could exceed ◊ 50%, or ◊ U.S. $55 to more than U.S. $60 per metric ton.

Such potential improvements bring Brazil nearly on par with the United States in terms of inland transport costs, effectively bolstering its farm industry.

Sustainable Transportation moving Soybeans to Market Position

30

Sustainability Looks Different When Factoring Modal Conditions

31

U.S. and Brazilian Soybean Production and Exports on Equalizing ◊ Both send about 60% of exports to China ◊ Each sends slightly varying volumes to

different markets

Brazil Modal Share becoming Comparable to U.S. ◊ Truck is the discrepancy – Brazil hauling 17

times further than U.S.

Brazil Highly Dependent on Truck to Final Market Position ◊ Trucking in Brazil alone:

Generates one-half of total ton-miles Consumes more than three-quarters of

fuel burned Emits nearly 90% of all CO2

Represents 71% of all fuel spills

Compared to the U.S., Brazil: ◊ Consumes twice as much fuel ◊ Emits four times as much CO2 ◊ Spills nearly double the fuel

0

50

100

150

200

250

United States Brazil

Mill

ion

Gal

lons

Fuel Consumption Moving Soybeans to Market Position by Mode

BargeRailTruck

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

United States Brazil

Mill

ion

Tons

CO

2

Fuel Emissions Moving Soybeans to Market Position by Mode

BargeRailTruck

Summary and Conclusions

32

Global Summary

33

The Global Age is Readily Apparent ◊ The world is shrinking ◊ Shipping options expanding ◊ The U.S. is not as pivotal

Developing Countries Slowly Coming of Age ◊ Expanding infrastructure ◊ Port developments ◊ Still a ways to go however

Economy Driving Infrastructure Issues ◊ Much work to be done ◊ Funding issues to abound ◊ Renewed efforts of collaboration required

Consistent message with meaningful facts

The Shifting Nexus of Global Agriculture

Investing in Agricultural

Infrastructure

Ken Eriksen Senior Vice President

901-766-4463 Ken.Erisken@InformaEcon.com

July 16, 2013

Prepared for