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DAVID KRUSE

Infrastructure spending

July 14, 2017
Farm News

When President Trump was in Iowa on what appeared to be a 2020 campaign rally tour he outlined the need for new spending on infrastructure which we have heard many times. This is something that both Democrats and Republicans say that they can support but there is nothing specific for a plan as to how to pay for it yet. Politicians have long touted the need for infrastructure spending but it doesn't happen. The Mississippi locks and dams have overreached their life expectancy.

Geopolitical expert, Peter Zeihan, has identified the internal river transportation system as one of our country's greatest competitive economic advantages against other countries in the world. No one else has the navigable rivers and river transportation system that we have. It is our greatest advantage against Brazilian Agriculture. We can move grain from our corn-belt to either the Pacific ports or through the interior Missouri, Mississippi and Ohio River systems needing only locks and dams while Brazil's comparable Mato Grosso is in the middle of the country with not even a single "good" road connecting it to ports. American Soybean Magazine notes that, "Research consistently highlights how the price farmers receive for soybeans and corn increases the closer in proximity one is to the barge loading facilities located along our inland rivers. Two farmers can equally be 1,000 miles from an export terminal. However, if one is located near the river, and the other is not, the profitability of the two will significantly differ."

I complain a lot about my grain basis here in Northwest Iowa compared to those on the river in the Eastern Corn Belt. Our feedlots and ethanol plants in this region have not been able to compete with the basis gained from river access to the export market. Our river system makes us competitive in the world grain export market. The new Panama Canal lowers our cost of delivery to Asian markets as well. To use this to our greatest advantage we need further port development to handle larger ships. The extended age of the Mississippi lock and dam system puts our competitiveness at risk.

The American Soybean Magazine says, "According to the U.S. Department of Agriculture (USDA), an unanticipated closure of a lock and dam can result in a drop in soybean prices up to 44 cents per bushel. Farmer profitability will diminish, not due to any mistake on his or her part, but simply due to breakdown in the supply chain. (21 cents for corn)." While politicians have long mused about the need to upgrade those outdated locks and dams, no one, not even the President on this visit, specifically outlined any plans to make it happen. We are whistling by the graveyard waiting for an accident to respond to. This would be a failure of government.

Donald has campaigned on creating a trillion dollar plan for joint government and private infrastructure renewal projects. While that may sound good to some, there are few private companies that want to build a bridge in rural Missouri for example, nor can they charge a toll to pay for it. That means that such a plan discriminates against rural infrastructure lending itself primarily to high profile headline grabbing type projects near population centers that can produce user revenue.

Trump will want to build things that he can put his name on where it will be noticed. They are sensitive to increasing the federal deficit by methods other than tax cuts, so that is why Donald has begun to favor building the wall along the Mexican border with solar panels, even claiming to have come up with the idea (which he did not).

While Agriculture has great need for infrastructure improvement, Trump plans have not outlined any specifically for the Ag sector. The irony though is that one of the means to pay for infrastructure improvement in general that was specifically outlined was to cut Ag spending by $38 bln. That is right. They do not commit to when or how they will replace needed locks and dams or other export infrastructure for the Ag sector but they see the Ag budget as a piggy bank to raid to pay for the rest.

One other view is that while these projects cost money there is likely nothing else the government has borrowed and spent for that has returned more on the investment than infrastructure spending. It pays for itself. I was alarmed and disappointed when Obama came with his $831 bln stimulus spending to learn that only $105 bln of it was spent on infrastructure with most of that massive funding spent on nothing that endured. It was just a free meal.

High priority Ag transportation repairs are estimated to cost $8.7 bln but instead of providing the funds in his budget, Trump cut the accounts that fund those things by 50 percent. Instead of going forward they are going backward. The Ag sector will have to fight tooth and nail not only to get its needed new infrastructure funded but to see to it that Ag accounts are not raided to pay for other's infrastructure. None of this fits the rhetoric from Donald, but what else is new?

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

 
 

 

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