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REVIEW THE CURRENT IMPACT OF

MISSISSIPPI RIVER TRANSPORTATION

ON AGRICULTURAL MARKETS

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

OCTOBER 26, 2005

Serial No. 109–18

(

Printed for the use of the Committee on Agriculture

www.agriculture.house.gov

COMMITTEE ON AGRICULTURE

BOB GOODLATTE, Virginia, Chairman

JOHN A. BOEHNER, Ohio,

Vice Chairman

RICHARD W. POMBO, California

TERRY EVERETT, Alabama

FRANK D. LUCAS, Oklahoma

JERRY MORAN, Kansas

WILLIAM L. JENKINS, Tennessee

GIL GUTKNECHT, Minnesota

ROBIN HAYES, North Carolina

TIMOTHY V. JOHNSON, Illinois

TOM OSBORNE, Nebraska

MIKE PENCE, Indiana

SAM GRAVES, Missouri

JO BONNER, Alabama

MIKE ROGERS, Alabama

STEVE KING, Iowa

MARILYN N. MUSGRAVE, Colorado

RANDY NEUGEBAUER, Texas

CHARLES W. BOUSTANY, JR., LOUISIANA

JOHN J.H. ‘‘JOE’’ SCHWARZ, Michigan

JOHN R. ‘‘RANDY’’ KUHL, JR., New York

VIRGINIA FOXX, North Carolina

K. MICHAEL CONAWAY, Texas

JEFF FORTENBERRY, Nebraska

JEAN SCHMIDT, Ohio

COLLIN C. PETERSON, Minnesota,

Ranking Minority Member

TIM HOLDEN, Pennsylvania

MIKE MCINTYRE, North Carolina

BOB ETHERIDGE, North Carolina

JOE BACA, California

ED CASE, Hawaii

DENNIS A. CARDOZA, California

DAVID SCOTT, Georgia

JIM MARSHALL, Georgia

STEPHANIE HERSETH, South Dakota

G.K. BUTTERFIELD, North Carolina

HENRY CUELLAR, Texas

CHARLIE MELANCON, Louisiana

JIM COSTA, California

JOHN T. SALAZAR, Colorado

JOHN BARROW, Georgia

EARL POMEROY, North Dakota

LEONARD L. BOSWELL, Iowa

RICK LARSEN, Washington

LINCOLN DAVIS, Tennessee

BEN CHANDLER, Kentucky

PROFESSIONAL STAFF

WILLIAM E. O’CONNER, JR., Staff Director

KEVIN J. KRAMP, Chief Counsel

JOHN HAUGEN, Communications Director

ROBERT L. LAREW, Minority Staff Director

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C O N T E N T S

Page

Baca, Hon. Joe, a Representative in Congress from the State of California,

opening statement ................................................................................................ 3

Goodlatte, Hon. Bob, a Representative in Congress from the Commonwealth

of Virginia, opening statement ............................................................................ 1

Peterson, Hon. Collin C., a Representative in Congress from the State of

Minnesota, opening statement ............................................................................ 2

Salazar, Hon. John T., a Representative in Congress from the State of Colorado, prepared statement .................................................................................... 3

WITNESSES

Dickey, Bob, producer, National Corn Growers Association, Laurel, NE ........... 23

Prepared statement .......................................................................................... 64

Gaibler, Floyd, Deputy Under Secretary, Farm and Foreign Agricultural Services, U.S. Department of Agriculture ................................................................. 6

Prepared statement .......................................................................................... 42

Gallagher, Timothy, senior vice president and general manager, Grain Division, Bunge North America, St. Louis, MO, on behalf of the North American

Export Grain Association .................................................................................... 25

Prepared statement .......................................................................................... 70

Kohlmeyer, Robert, president emeritus, World Perspectives Inc., Fairfax Station, VA ................................................................................................................. 29

Prepared statement .......................................................................................... 75

Riley, Major General Don T., director, Civil Works, U.S. Army Corps of

Engineers .............................................................................................................. 5

Wilken, Royce C., president, American River Transportation Company, Decatur, IL, on behalf of the National Grain and Feed Association ........................ 27

Prepared statement .......................................................................................... 85

Woodley Jr., John Paul, Assistant Secretary of the Army (Civil Works), Office

of the Assistant Secretary of the Army, Washington, DC ................................ 4

Prepared statement .......................................................................................... 37

SUBMITTED MATERIAL

Conley, Dennis M., professor, Department of Agricultural Economics, University of Nebraska-Lincoln, and Kerr, Christopher, M.B.A. agribusiness graduate student ‘‘Impacts of Hurrican Katrina in the Mississippi Gulf Region.’’ 80

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REVIEW THE CURRENT IMPACT OF

MISSISSIPPI RIVER TRANSPORTATION

ON AGRICULTURAL MARKETS

WEDNESDAY, OCTOBER 26, 2005

HOUSE OF REPRESENTATIVES,

COMMITTEE ON AGRICULTURE,

Washington, DC.

The committee met, pursuant to call, at 10:00 a.m., in room

1300, Longworth House Office Building, Hon. Bob Goodlatte (chairman of the committee) presiding.

Present: Representatives Lucas, Moran, Jenkins, Gutknecht,

Hayes, Johnson, Osborne, Schwarz, Kuhl, Conaway, Fortenberry,

Schmidt, Peterson, Holden, McIntyre, Etheridge, Baca, Scott,

Herseth, Butterfield, Cuellar, Salazar, Barrow, Pomeroy, Davis,

and Chandler.

Staff present: William E. O’Conner, Jr., staff director; Bryan

Dierlam, Kevin Kramp, Tyler Wegmeyer, Ben Anderson, Callista

Gingrich, clerk; Lindsey Correa, Chandler Goule, and Anne Simmons.

OPENING STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH

OF VIRGINIA

The CHAIRMAN. Good morning. This hearing of the House Committee on Agriculture to review the current impact of Mississippi

River transportation on agricultural markets will come to order.

I have called this hearing to discuss the transportation system

situation on the Mississippi River and the impact it is having on

current agricultural markets. The Mississippi River is a vital part

of our Nation’s agricultural infrastructure. Annually, almost 1 billion bushels of grain, 60 percent of our grain exports, travel its waters. It is hard to overstate the value of this waterway when 80 to

90 percent of the corn exported from Mississippi River ports moves

by barge from the Midwest.

The current transportation difficulties on the Mississippi River

have many causes. Ten days ago, I led a delegation of committee

members to New Orleans and southwest Louisiana to see the impact of Katrina firsthand. Hurricane Katrina disrupted barge operations and port facilities, contaminated barges with rain and storm

water, and caused the transportation system to be out of sync. At

the port facility we visited, I was told that export facilities are operating at about two-thirds capacity due to difficulties with the

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barge logistics system and the difficulty of dealing with nearly 500

barges containing damaged grain.

Here is a sample of grain from that facility, showing the damage

done to corn when it gets wet and then cooks in a barge under the

hot gulf coast sun.

But the challenges on the Mississippi River system are not limited to hurricane damage. Drought in the upper Midwest reduced

water levels in the Illinois and upper Mississippi that led to navigation advisories in St. Louis earlier this year. Limited flows on the

Missouri River are reducing that river’s contribution to the Mississippi River, potentially endangering navigation between St.

Louis and Cairo, Illinois.

This confluence of events on the Mississippi River is straining

our transportation capacity at a time when we are about to harvest

our second largest corn crop in history, projected at 10.9 billion

bushels and a record carryover of 2.125 billion bushels.

With barge capacity constrained, freight rates have risen appreciably. The USDA’s October 20 Grain Transportation Report

showed barge rates at almost three times the historic 3-year average. High freight rates mean lower cash bids in interior markets.

As cash prices have fallen, loan deficiency payments are on the increase.

From the Corps of Engineers I would like to know what the outlook is for navigation up and down the Mississippi River and its

tributaries. Specifically, what is your assessment on the availability of the water resources needed to move grain to market?

From the USDA, I would like your assessment of the impact of

high transportation costs on your administration of farm programs,

the steps you have taken to alleviate transportation bottlenecks,

and the success you have seen in the steps taken thus far.

From the industry panel, I would like to know how this situation

is impacting your operations, how you and the industry are dealing

with it, and how any changes, if any, are occurring to traditional

marketing patterns.

I appreciate the attendance of our witnesses today, and I look

forward to your testimony.

It is now my pleasure to recognize the gentleman from Minnesota, the ranking member, Mr. Peterson.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA

Mr. PETERSON. Thank you, Mr. Chairman. I want to thank you

for calling this hearing today.

The status of the Mississippi River system’s ability to serve agriculture and the other sectors of our economy dependent on barge

traffic was a topic of a great deal of discussion even before Hurricane Katrina hit. The impacts of Katrina came on top of a situation

where producers faced a good deal of the 2004 corn crops still in

storage, a near record crop, as you said, in 2005, despite the

drought in some areas of the country where they grow corn, and

soybeans have added to that.

Skyrocketing energy prices are impacting all modes of agriculture commodity transport, and all of these factors are leading to

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storage problems. We have, my district, large piles of corn getting

bigger every day. As I fly around, I can testify to that. We always

have some corn on the ground, but this year it looks like it is going

to be a record. From Minnesota to the devastated gulf region, our

farmers are captive to ability of the Nation’s transportation system,

whether its barge, rail or truck, to get their products to market in

an efficient manner.

I look forward to the testimony of today’s witnesses and the discussion to follow.

The CHAIRMAN. The gentleman from California.

OPENING STATEMENT OF HON. JOE BACA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Mr. BACA. Thank you, Mr. Chairman. Thank you for hosting this

hearing; and thank you, Mr. Peterson.

I think this is a important hearing since the Port of New Orleans, south Louisiana, accounts for 60 percent of all grain exported

from the United States. We need to address the grain transportation. The diminished workforce issue is another issue and other

problems caused by the Hurricane Katrina so that we can continue

on the road to recovery.

Nevertheless, I must point out that this committee has not

passed any disaster assistance for Katrina or other hurricane victims. This committee has not passed any legislation at this time in

any kind of assistance.

This committee has not taken up consideration of legislation by

Ranking Member Peterson to allow disaster assistance payment for

farmers affected by the hurricane or improved access to food stamp

benefits for Katrina victims.

Furthermore, we need to ensure that this rich agricultural region

maintains a stable agricultural workforce. That is why we must

look at assisting many farmers who no longer have housing and

only receive limited Federal disaster assistance. We care about the

industry and the green market, but I am also concerned that we

are failing to address the human problems left behind by Katrina,

the farmers and farm workers who are out of work and families

who may not be able to receive food stamps beyond the short term

of emergency food assistance.

I urge the chairman to mark up the bill by Ranking Member Peterson and allow for relief not just for the green market but also

for the real human beings who are still recovering from that devastating hurricane.

I yield back the balance of my time.

The CHAIRMAN. I thank the gentleman.

Any other Members wish to make an opening statement?

[The prepared statement of Mr. Salazar follows:]

PREPARED STATEMENT OF HON. JOHN T. SALAZAR, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF COLORADO

• Thank you Chairman Goodlatte and Ranking Member Peterson for holding this

important hearing today. • Agriculture is the backbone of our economy

• Our agriculture products are dependent upon the transportation sector to deliver the commodities to markets. • The most recent hurricanes have shown just how important the Mississippi

River is for transporting America’s commodities.

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• That is one of the reasons why I have supported legislation like the Water Resources Development Act.

• The Water Resources Development Act would assist in updating the lock system

on the Mississippi and major tributaries that carry barge traffic.

• We need to update our transportation system so that our goods can efficiently

make it to market and keep our agriculture producers globally competitive.

• I look forward to hearing the testimony of the two panels

• I thank the panel participants, Chairman Goodlatte and Ranking Member Peterson for bringing this issue to the committee.

The CHAIRMAN. We will now proceed to our first panel of witnesses.

I would like to welcome the Honorable John Paul Woodley, Jr.,

Assistant Secretary of the Army for Civil Works of the Office of the

Assistant Secretary of the Army, Washington, DC; Major General

Don Riley, Director of Civil Works for the U.S. Army Corps of Engineers, also Washington DC; and Mr. Floyd Gaibler, Deputy Under

Secretary for Farm and Foreign Agricultural Service of the U.S.

Department of Agriculture also of Washington, DC.

Mr. Assistant Secretary, welcome. You are always welcome in my

committee as a former fellow classmate at Washington and Lee

Law School. It is good to have you back with us today.

STATEMENT OF JOHN PAUL WOODLEY, JR., ASSISTANT SECRETARY OF THE ARMY (CIVIL WORKS), OFFICE OF THE ASSISTANT SECRETARY OF THE ARMY, WASHINGTON, DC

Mr. WOODLEY. Thank you very much, Mr. Chairman. It is a real

privilege for me to appear before this very distinguished committee

which you lead.

I am John Paul Woodley, Jr., Assistant Secretary of the Army for

Civil Works. I am pleased to appear today with Major General Don

Riley, Director of Civil Works for the U.S. Army Corps of Engineers, and prior to serving in that capacity, commander of the Mississippi Valley Division of the U.S. Army Corps of Engineers

headquartered in Vicksburg, Mississippi.

We are here, of course, as you say, to discuss the status of the

Mississippi River transportation system and the role that the Department of the Army and the Corps of Engineers plays in ensuring the viability of this critical transportation artery.

The Corps has had a navigation mission since the Survey Act of

1824. Since that time, the Corps of Engineers has established a

tradition of fulfilling the vital navigation needs of the Nation

through construction and maintenance of ports and waterways

across the country. Surely the premier such waterway is the Mississippi River corridor. The goal of the Corps’ navigation mission is

to help facilitate commercial navigation by providing safe, reliable,

highly cost-effective and environmentally sustainable waterborne

transportation systems.

Water resources management infrastructure has improved the

quality of our citizens’ lives and supported the economic growth

and develop of this country. Our systems for navigation flood and

storm damage reduction projects and efforts to restore aquatic ecosystems all contribute to the national welfare.

The Mississippi River serves as a major transportation artery for

the movement of bulk commodities such as agricultural products

and petroleum products. After Hurricane Katrina struck Louisiana

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and the Mississippi gulf coast, numerous barges and tow boats

were impacted, many of which contained agricultural products intended for offloading at one of the many grain facilities in the New

Orleans, Louisiana, area. At the same time, all shipping into and

out of New Orleans was halted. This had a major impact in the

short term on the ability to move petroleum products and grain.

I should mention at the same time that we also experienced a

short-term closure of the gulf intercoastal waterway.

Immediately after Hurricane Katrina passed, Federal agencies,

including, NOAA, the U.S. Navy, U.S. Coast Guard and the Corps

of Engineers began to assess the condition of the Mississippi River,

as well as all other impacted ports and waterways. This monumental task was completed much sooner than projected. Thanks to

the coordinated Federal effort, outstanding support from our waterway users and partners, the Mississippi River has been successfully restored to full deep-draft operation; and many of the barges

and vessels that were struck have been retrieved and placed back

into service.

Mr. Chairman, this concludes my statement. I call on Major General Riley to address the current conditions and future projections

for navigation of this critical waterborne transportation system;

and, of course, we would each be delighted to respond to any questions from the committee.

The CHAIRMAN. Thank you, Secretary Woodley.

General Riley, welcome.

STATEMENT OF MAJOR GENERAL DON T. RILEY, DIRECTOR,

CIVIL WORKS, U.S. ARMY CORPS OF ENGINEERS, WASHINGTON, DC

General RILEY. Thank you, Mr. Chairman and distinguished

members of the committee.

I am General Don Riley, Director of Civil Works; and I am honored to be testifying before you today as long well as Assistant Secretary to the Army on Civil Works, General John Paul Woodley, on

the status of the Mississippi River transportation system.

The latest long-range forecast prepared by NOAA for both precipitation and temperatures suggest that the upper midwestern

States have a greater-than-average chance of experiencing dry

weather conditions during the upcoming winter season and project

warmer-than-normal conditions.

From evaluations of river stage information, it is reasonable to

anticipate some fairly low stages during the next few months. Forecasting impacts on river traffic is difficult, because river stages do

not directly relate to allowable drafts and tow sizes. There are

many factors that are taken into consideration when deciding what

prudent restrictions should be in place. For example, on the middle

Mississippi, drafts are historically unrestricted as long as the Saint

Louis gage is above zero feet. In August of this year, we experienced an unusually low stage of minus 11⁄2 feet. During this period.

During this period, the industry adjusted their tows by placing

heavier barges in the center and larger barges on the outside.

It is unlikely to occur this winter, but once stage is reached or

forecasts are reached, the minus 2 to minus 3 foot stages, drafts

have usually been reduced to less than 10 feet. Provided the stages

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fall at a reasonable rate and there is not a grounding which disturbs the bottom of the river, drafts of 9 feet or better can be accommodated with dredging.

In addition to draft restrictions, tow sizes are reduced as stages

fall. Unrestricted tows on the middle Mississippi are usually in the

36 to 40 barge range, with stages approaching zero industry typically reduces their tows to 30 barges or less.

In the 2 to 3 foot minus stage, tows would be made up of 24

barges or less. Now, with extreme low stages, tow sizes would typically be reduced to 12 to 15 barges. All these decisions, however,

are very much dependent on the actual channel conditions. Decisions regarding restrictions on tow sizes and drafts are made

through a collaborative effort of the Corps, the Coast Guard, the

National Weather Service and the towing industry.

The Corps’ primary role is monitoring channel conditions, assisting the Coast Guard in locating and marking channels and dredging as required. There are three dredges currently working on the

shallow draft channels of the Mississippi River, and the Corps has

the ability to bring additional Government and contract dredges

into the area when required.

Now, during the winter, ice results in suspension of commercial

navigation on the upper Mississippi above St. Louis from mid-December until mid-March. During ice closures this winter, we plan

to close Locks 11 and 19 for major rehabilitation work. Historically,

ice on the middle Mississippi does not result in a complete closure,

although some years it leads to traffic delays and short-term stoppages, typically in January and February.

In sum, it is unlikely that there will be any long-term disruptions or closures to barge movements due to inadequate channel

conditions. The Corps is committed to maintaining this vital waterway in the best possible condition. We will remain diligent in monitoring channel conditions through surveys and communications

with towing companies to assure that potential problems are recognized early and addressed appropriately.

Again, I appreciate the opportunity to testify today and thank

you for all that you do as we work together to ensure safe, reliable

and efficient navigation for our Nation; and I would be pleased to

answer any questions you have. Thank you.

[The prepared statement of Mr. Woodley and General Riley appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, General.

Secretary Gaibler, welcome.

STATEMENT OF FLOYD GAIBLER, DEPUTY UNDER SECRETARY, FARM AND FOREIGN AGRICULTURAL SERVICES,

U.S. DEPARTMENT OF AGRICULTURE

Mr. GAIBLER. Thank you, Mr. Chairman and members of the

committee, for the opportunity to come before you today and discuss the impacts of the recent hurricanes on our transportation infrastructure in the gulf region. The devastation and damage left in

the aftermath obviously had ripple effects upstream, affecting all

modes of transportation, which in turn has exacerbated the fall

grain harvests and storage concerns.

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I would like to focus my remarks on the impacts of the events

on agriculture and, specifically, the grain industry and transportation sector’s ability to move grain during this difficult period. In

addition, I would like to review with you the actions taken by the

Department to reduce the stress placed on the transportation and

handling system and, finally, provide our perspective on the outlook for navigation as we move forward with the harvest in full

swing.

In a typical year, 50 to 65 percent of U.S. grain exports move

down the Mississippi and through the gulf to their final destinations around the globe. The immediate impact of the hurricanes

was devastating. Although the river was opened quickly, oil spills,

debris and nearly a complete loss of navigational aids rendered the

river impossible for navigation.

The pace of vessel loading at ports fell considerably the week following Hurricane Katrina. In addition to the bulk grain facilities

and ports along the Mississippi River, the Ports of New Orleans,

Gulfport, and Pascagoula, Mississippi, sustained severe damage.

Grain elevators on the Texas gulf generally escaped damage

when Rita hit. In the Mississippi and Texas gulf regions, the hurricanes affected both rail and waterway transportation negatively.

Alternative ports to the Mississippi/center gulf region were already

running at near or full capacity when the hurricane struck, limiting the ability to divert products to these ports.

Leading up to the Hurricane Katrina, some of the advantages of

the barge rates over rail were already eroding because of the severe

drought in the cornbelt States and lower water levels in the upper

Mississippi River system.

USDA responded quickly to this situation and implemented several emergency provisions to reduce the stress on the grain transportation system and help improve the situation for farmers and

ranchers immediately.

First, USDA provided a temporary incentive to assist movement

of 145 barges of damaged corn, nearly 180,000 tons, out of New Orleans to up-river locations. Once unloaded, the empty barges will

continue up the river and begin to move new crop commodities.

The Department also paid incentives for alternative storage of up

to 50 million bushels of grain. To date, we have accepted proposals

for more than 41 million bushels. This will further ease pressure

on producers marketing commodities under adverse conditions.

USDA also provided a transportation differential to cover the

costs of moving grains from other transportation modes, handling

methods and locations. We have accepted six offers to move nearly

295,000 tons of corn, wheat and soybeans through the Great Lakes

and Pacific Northwest ports.

The Department also made immediate changes to our 2005 crop

year marketing loan assistance program to allow producers to obtain loans on farm grain storage in addition to storage in grain

bins and other approved structures.

To further alleviate grain movement pressure, the Department,

on a State-by-State basis, allowed producers with 2004 corn, soybeans and rice loans that matured in September and this October

to—and wish to forfeit that loan collateral—the opportunity to hold

those commodities for 60 days. During that 60-day period, they

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have the option to purchase those commodities at the rate CCC

uses in allowing marketing assisted loans to be paid.

With respect to the recovery at the Port of New Orleans, normally 1,500 to 3,000 people are employed as dock workers, truckers

and crane operators. Currently, 1,000 of the workers have returned

to work and are living on temporary MARAD ships provided by the

Department of Transportation. There is continued high demand for

truck drivers at the port, and truck capacity is running at 40 percent of pre-storm levels.

The Mississippi gulf grain inspections have increased significantly, and Texas gulf inspections have returned nearly to normal,

with the exception of the Beaumont facility. Vessel loadings in the

Mississippi and Texas gulf are recovering and progressing; and rail

deliveries, while they remain low, they have begun to rebound in

the Mississippi. Real grain deliveries have begun to rebound significantly in the Texas Gulf.

Barge operators, from our intelligence, say a lack of adequate

labor to unload barges and turn them around is still resulting in

a huge bottleneck of barges in the South; and there is a critical

shortage of lodging facilities for barge crews in the southern area.

Barge shipments to the Mississippi gulf were running behind the

4-year average before Hurricane Katrina; and while they continue

to lag for the week ending October 15, grain shipments, barge

grain shipments rose over 160 percent of the preceding 4 weeks.

Shippers are bidding against each other for barge and rail capacity;

and some shippers are paying as much as 93 cents per bushel to

ship corn on barges, 200 percent more than last year.

Grain storage capacity remains a serious problem, complicated

by the carryover of soybeans and corn from the bumper crops as

well the ongoing harvest of what will likely be the second largest

crop on record.

Longer term, we are optimistic, but cautiously so. We think the

pace of recovery and status of the grain and barge industry today

are remarkable, given the damage inflicted by the hurricanes; and

where we are today we believe is in no small measure to the cooperation of many people—the individuals in the grain and barge

industry, the Army Corps of Engineers, Coast Guard and the Department.

We are optimistic that the river system will handle the grain,

even though it will be a more expensive year to move grain.

Obviously, grain transportation, storage and energy costs are the

three critical issues facing Midwest farmers along the river today.

While the situation is steadily improving, an intense focus will be

continued by Federal, State and local governments along with private efforts over the short term, particularly in the next 3 to 6

months.

So, with that, Mr. Chairman, I will conclude my remarks; and I

appreciate the opportunity to answer any questions.

[The prepared statement of Mr. Gaibler appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Secretary Gaibler.

My first question for you relates to the capacity of the grain handling facilities. When we were down in New Orleans 9 days ago,

myself and 10 other members of this committee, we were informed

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that the estimate was between 65 and 70 percent capacity. They

were not complaining. They said they were short of labor, but their

biggest problem was the availability of grain coming into them because of the number of barges that had this kind of damaged grain

on it and they were not being offloaded. They were not being diverted to some other purpose, and therefore the barges were not

being freed up to get back up-river and bring more grain down.

I wonder if you might comment on that observation we received

from the industry folks that we spoke to.

Mr. GAIBLER. Well, there is no doubt, when the hurricane first

hit, we reached out to the industry and asked them to determine

for us what the critical issues were that they were facing after the

hurricane; and the damaged corn in barges was the primary issue

that was raised. So that was the first thing that we did as far as

the three major initiatives that we undertook. We agreed to move

up to 110,000 tons almost immediately within a short time frame

after the hurricane hit. We kept getting proposals in after the fact,

so we felt we had to evaluate those proposals and address them.

So we issued a Federal Register notice and we have accepted proposals for another 45 barges.

The argument could be made that we could always do more because of continued grain down there, but we have had to balance

that against the costs of moving that product. They are very high

to move grain because it is a out of position move, not a normal

movement. You have to find a place for this damaged grain, and

that is a conflicting and a complicating factor.

The CHAIRMAN. Let me interrupt you, Mr. Secretary. Do you

have an estimate of how many barges remain loaded with damaged

grain in the New Orleans area?

Mr. GAIBLER. Well, we don’t have a firm estimate. The best we

have come up with is 250 barges that could be possibly loaded with

grain. In looking at some of their proposals that also included some

that were upstream such as St. Louis.

The CHAIRMAN. Let me ask you this. Have you exhausted the

funds available for this program that you have put in place to free

up barges, and are you considering any additional funds for that

purpose?

Mr. GAIBLER. We have basically exhausted the funds that were

targeted towards the barge movement. We do have some remaining

funds left over from the transportation differential and the alternative storage. We would have to go back to OMB, frankly, and

seek approval if we were to do that.

The CHAIRMAN. Have you done that?

Mr. GAIBLER. We have had conversations—personally, I have had

a preliminary conversation with staff at the Office of Management

and Budget about that possibility.

The CHAIRMAN. Has anybody in the Department determined the

impact of these 250 barges being unavailable to transport grain

down the river and the cost to the taxpayers of higher loan deficiency payments because of the fact that grain prices are so low

when they are sitting on the ground, as the gentleman from Minnesota noted was the case in his district and I know in many other

districts up and down the Mississippi River valley?

10

Mr. GAIBLER. Well, we haven’t done any explicit analysis on it,

but we believe that undertaking these initiatives would have a

positive impact and result in trying to help keep prices up at a

level higher than they would otherwise be.

As a rule of thumb, for corn, when the price is below the loan

rate, a penny moved up or down is equivalent to $90 million based

on this year’s crop. So we felt that whatever we did in terms of the

cost was going to be beneficial, but we don’t have any specific analysis in terms of what impact that has had.

The CHAIRMAN. But you think that getting these barges freed up

would definitely have a positive impact on the payments under our

farm programs?

Mr. GAIBLER. Yes. Yes, we do. In fact, I would note as early as

yesterday we received a briefing on current corn prices. One of the

factors that kept prices from—particularly the futures prices from

moving down more than anticipated was the fact that the barge

rates had actually decreased 15 cents a bushel for corn over the

preceding week. So we think there are some positive impacts here.

But, obviously, we do have a critical situation with the ability to

deal with this damaged grain. The elevators have to find a way to

take that grain off the barges and blend it and condition it in with

other grain; and that slows up the process and the ability to move

grain out of the elevator.

The CHAIRMAN. But some of the grain can be moved back upriver and used for other purposes like livestock feed and so on that

might not be suitable for the export purposes served by many of

those terminals in the New Orleans area?

Mr. GAIBLER. That is a possibility. One of the things that we

looked at, though, was that we did not want to see these movements go back up and displace what uses that could have been otherwise fulfilled by old crop or new crop harvest corn. So we were

very careful about trying to make sure that we don’t displace grain

that would otherwise say go to an ethanol plant or a livestock feed

that would have otherwise came in from old or new crop.

The CHAIRMAN. I understand, Mr. Secretary, but it is also true

that if you remove the grain from those barges you free them up

to restore the entire transportation flow. One of the problems we

have right now is we are losing international markets because of

the fact that we cannot transport enough grain through New Orleans to meet the demand; and foreign competitors are stepping in

with higher grain prices on the international market, ironically, to

meet some of these needs. So restoring the normal flow of grain

through our system as rapidly as possible has serious long-term

implications. Not only will we save money on the payments under

our farm programs, we will also restore the international markets

as quickly as possible and keep the price of grain higher than it

is.

So I hope you will join us in pushing the Office of Management

and Budget to act on this and act on it rapidly. Time is really of

the essence in terms of getting the system back to normal. It is

going to take a while under any circumstance, but if we have 250

barges that are idled and nothing being done to free them up, we

have a problem that concerns me greatly.

11

Thank you very much, and I will now yield to the gentleman

from Minnesota.

Mr. PETERSON. Thank you, Mr. Chairman.

Mr. Gaibler, I think you said in your testimony that the barge

loadings were running behind the 4-year average prior to Katrina?

Is that correct?

Mr. GAIBLER. That is correct.

Mr. PETERSON. Maybe I missed it, but do you know why that is?

Mr. GAIBLER. Well, I think a lot of it was driven by the fact that

we had the low-water-level problem in the upper Mississippi that

we have been dealing with all summer primarily because of

drought. And we have continued escalation of energy prices; and

that has increased costs and competition across the board for either

barge, rail or shipping. As it relates to corn export demand has

been somewhat muted lately for a number of reasons.

So I think it is a combination of those things, we already were

in a situation where barge rates were already high preceding the

hurricane. Then, with the impact of the hurricane, the totality of

that, simply exacerbated it; and that is when we really saw the

barge rates spike.

Mr. PETERSON. Maybe it is completely unrelated, but up in my

area and all around my district, they are building more and more

ethanol plants. I think there is 10 or 12 of them that are under

construction now. We just added four in the last 6 months in my

district. They are using a lot of corn and I think this thing is really

at the infant stage of really taking off.

We have been working on this for 30 years. We finally have the

car companies now even advertising E–85 on television. A year and

a half ago, north of Alexandria, which is 250 miles from the Canadian border, we didn’t have an E–85 pump; and now we have one

in just about every town. We have been out trying to promote it.

So, long term, I wonder if you are going to have as much corn

moving down the Mississippi. The more we build these plants, the

less corn that is going to be needed to moved out. Have you looked

at that?

Mr. GAIBLER. Well, we have looked at that from a number of

viewpoints. Corn for ethanol has become such a large amount of it,

it is now a single-line item in our supply/demand estimates; and we

know the growth of ethanol plants is increasing dramatically. The

energy legislation with the increase of the minimum renewable fuel

standard will obviously incentivize the expansion in that area, and

we note that it has become a situation that we have to deal with

in trying to calculate our posted county prices and try and relate

to changes in local supply and demand conditions. We notice that

the influence of ethanol, along with large livestock markets, is

making our ability to manage these PCPs more difficult.

So, yes, we think that there is, and I think in some areas of the

country the local conditions with respect to ethanol plants and livestock feeding and other uses have lessened the impact that some

other areas have had with storage and transportation problems.

Mr. PETERSON. What would happen if we made all of the corn

that is now exported into ethanol? What would happen to the

transportation system on the Mississippi?

12

Mr. GAIBLER. Well, we haven’t looked at that. We export roughly

about 2 billion bushels of corn a year and a significant amount of

soybeans and other products; and we continue to believe that exports are going to continue to to expand. That is part of the reason

why the administration has put so much effort on the Doha round

to try and gain market access, because we think that is, long term,

the best way to expand our ability to remain competitive in the

long run.

So I think our export markets, value-added markets are going to

continue to be there and to continue to grow; and we will need to

have the Mississippi River barges and other transportation modes

to move our products.

Mr. PETERSON. Well, you are probably right, but I just would advise you, given the price that people are getting today for their

commodities, you have a growing number of people out there that

are questioning whether we should be exporting at a loss like they

are doing this year. A lot of people talking about let’s try to switch

this ethanol, get the livestock in there to eat the byproducts and

shift the whole structure. So it is going on, and it is maybe growing

faster than a lot of people realize. I think you ought to at least

think about that long term in terms of what impact this might

have on the whole situation.

The CHAIRMAN. I thank the gentleman.

The gentleman from Michigan, Mr. Schwarz, is recognized.

Mr. SCHWARZ. I know neither of any of you are rail experts per

se or represent the rail industry, but I would like to know what,

at least as far as your knowledge is concerned, the capacity of the

rail industry is to make up for the shortfall in barge capacity in

moving grain south to the Port of New Orleans.

ICCM’s Main Line goes right down to Mississippi into New Orleans. Kansas City Southern does as well. Union Pacific has trackage

into New Orleans. Is there any help there? Is there any help forthcoming? Or do they simply not have the capacity in grain-carrying

hopper cars.

It would seem to me this would be a time for the U.S. rail industry to step up and try to close some of the gap that has been created by the unavailability either of the river itself for navigation

or of barges.

Mr. GAIBLER. I will try to respond.

I do not know the current capacity of the rail system.However,

they have made investments over the last few years in the infrastructure and hopper cars and locomotives and that they are very

much operating at full capacity. The fact that part of their interchange systems particularly in the Texas gulf are still going

through reconstruction.

But we do know, at least from our transportation differential initiative, that we were able to see some of those movements that

would have otherwise gone down to the gulf being diverted primarily through the Pacific Northwest. So there is some capacity

there, and I do think it will begin to even out as we get through

the critical harvest period. But the nonagriculture traffic is in demand, is very strong at this time right now as well.

So I can’t speak any more definitively about their capacity, but

we certainly would be willing to provide you more information.

13

Mr. SCHWARZ. I think possibly on the next panel there may be

some folks that can answer those questions a little more specifically, but just for anybody who might be listening it seems to me

that this is a great opportunity for the rail industry in the United

States to step up to the plate and do the job.

We have heard complaints from the rail industry over the last

couple of decades that they are underutilized; and then they do

things, mergers, undermaintenance of right of way, where they

really can step up to the plate. This would be an absolutely superb

example of where they could, because of the rail lines that parallel

the river coming out of the Midwest down to Port of New Orleans

and other gulf coast ports. I think it is a valid point, and I hope

it is a point made with someone.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you.

The gentleman from North Carolina, Mr. Etheridge, is recognized.

Mr. ETHERIDGE. Thank you, Mr. Chairman.

Mr. Secretary, question for you. When we were in New Orleans,

a little over a week ago now, one of the issues was personnel to

help the elevators and, obviously, the barges. But my first question

deals with personnel. They had indicated to us—and you may have

talked about this earlier, before I got here. But my question is this,

that there is a shortage of personnel, and there are some temporary lodging or trailers that have been moved in to help. But my

question is, along the whole range of the Mississippi now with all

the ports—and then I will come back to the barges—has that been

looked at by the Department to help that, in addition to FEMA?

Because there are people who are outside the New Orleans area

that probably could help there, but we just don’t have the people

and facilities to help run some of the equipment they already have,

even if we wanted to move the grain through. Is that correct?

Mr. GAIBLER. Yes. Well, to answer your first question, yes, there

is a shortage of labor, and there is a shortage of housing, lodging

facilities. I know that the Department’s Rural Development Agency

has worked closely with FEMA to try and provide alternative housing for people that have lost their homes as a result of both Hurricanes Rita and Katrina and are now working on Hurricane Wilma.

Mr. ETHERIDGE. Mr. Secretary, do we have a timeline for that?

if we don’t have a timeline, we don’t know what we are going to

get to. I understand your dilemma, but has anyone done the

timeline?

Mr. GAIBLER. I will have to get that for you. I simply don’t know.

I know that Rural Development is working with FEMA to provide

housing, and I assume that part of that would encompass employees in the New Orleans Louisiana Gulf area.

As I mentioned in my testimony, there has been assistance

through MARAD and the Department of Transportation in terms

of those issues as well.

Mr. ETHERIDGE. If you would provide that, we would appreciate

it. Along with that and the challenges we face there, because it has

an impact, as has already been seen in some of the questions you

have shared with us, the amount of damaged grain to 250 idle

barges—my question is, prior to the hurricanes, it created a probVerDate 11-SEP-98 11:02 Nov 16, 2005 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 F:\DOCS\109-18 HAGRI PsN: HAGRI
14

lem, or some of the problem. Do you know what the cost of a barge

was, usage of a barge, and then how much that has escalated

through, let’s say, last week?

Mr. GAIBLER. I don’t have specific information. I have read some

of the testimony of the other witnesses that could give you precise

or more specific numbers, but we can provide that for the record.

In addition, we have provided a whole set of charts to give you an

overview of barge shipments and barge rates, but I can’t give you

the specifics of what we have.

Mr. ETHERIDGE. Do either of our other witnesses have that number?

General RILEY. No, sir. I don’t have good specifics on that for

you.

Mr. ETHERIDGE. If you could provide that, I would appreciate it.

Because that I think that, along with the other stuff, has a real impact on our competitiveness as our farmers try to deal in the world

market. As the chairman said earlier, this puts us in a very big disadvantage not only competitively but forces through payments to

increase those numbers.

Now let me ask one other question, Mr. Secretary, before my

time runs out, as it relates to the barges that idle in and the

amount of damaged grain. There has been talk of the Commodity

Credit Corporation receiving proposals to move some of that damaged grain, of course, out; and you alluded to that earlier.

The key is, the sooner we get it moved—however we do it—it

seems to me would be an advantage to the farmers up-river and,

No. 2, to all taxpayers. Because one way or the other we are going

to pay that price. It may be more expensive keeping those barges

inactive than it would be if that was disposed of and we could

make them active. Comment on that?

Mr. GAIBLER. We are willing to look further into more barge

movements of damaged grain. We were trying to weigh that particular issue against the ability to divert shipments from going

down the Mississippi River system as well. I have heard the concerns raised here by the committee and the chairman and others,

and we will certainly go back and consider providing more alternative assistance in that regard.

Mr. ETHERIDGE. Thank you.

Thank you, Mr. Chairman. I yield back.

The CHAIRMAN. Thank you.

Gentlemen from California, Mr. Baca.

Mr. BACA. Thank you, Mr. Chairman.

Mr. Woodley and General Riley, if weather conditions were to

allow it, is it possible that the barge movement could continue on

the upper Mississippi beyond the normal mid-December shutdown?

Mr. WOODLEY. Yes. I believe that the limiting factor is the ice

that closes the upper Mississippi navigation.

Mr. BACA. General Riley.

General RILEY. Yes, sir. That is correct. We watch that very

closely, and it is purely related to the ice condition in the upper

Mississippi and the locks and how we can operate them safely.

Mr. BACA. Question to both Mr. Woodley and General Riley. In

your testimony, you said that construction is set on begin on December 15 on Lock, I believe, either 11 through 19 or Lock 15 and

15

19. Is there any chance that this construction could be pushed back

if there continues to be demand for barge movement into and out

of this area and weather conditions were to make it possible?

General RILEY. Absolutely, Congressman. We would do that. We

will only begin that construction upon the ice conditions allowing

that to begin.

Mr. BACA. This question is for the Under Secretary. There has

been discussion among farmers over the years about the ability to

lock in loan deficiency payments on the date of their choosing. Does

the administration have the authority to allow producers to do

this?

Mr. GAIBLER. To lock in? No. You are saying to try and lock in

LDPs at a later date?

Mr. BACA. Yes, that is correct.

Mr. GAIBLER. No, we don’t have the authority to do that; and we

would have concerns about doing that. That relates to this issue of

beneficial interest. The beneficial interests are there to protect the

producers by preventing grain elevators from taking possession of

grain before producers lock in loan repayment rates, and we think

that relaxing beneficial interests requirements creates a potential

for fraud and abuse and then thus increases potential budget exposure.

Mr. BACA. Thank you.

The chairman asked an important question when you talked

about the international market and competitiveness and the high

cost. Have any studies been done based on us passing CAFTA not

too long ago and the impact it could have on us now and it could

have on the future not only with what is happening right now?

Have any studies been done? Because this could also impact us

internationally in terms of our competition, our market.

Mr. GAIBLER. Well, as I recall——

Mr. BACA. Of course, we should have voted no, but we voted yes.

Mr. GAIBLER. I forget the numbers. I think that the current exports that we had to the CAFTA countries was in the neighborhood

of—I think it was—I am going to have to correct this—but in the

neighborhood of some $5 million. But the estimates were that, because of the new CAFTA implementation and the fact that the tariffs were going to go down immediately or be eliminated completely

in some cases, that our exports could double almost immediately.

So we think that it is important to increase trade, particularly

within our own hemisphere. We have a lot of competitive advantages to do that. So we think that CAFTA will have a very positive

impact for the agriculture industry in total.

Mr. BACA. But yet it could impact our farmers, especially when

we talk about the corn and ethanol plants that are being built

where, because of CAFTA, they could actually obtain—and it was

stated here by the Under Secretary, in the past, that they could obtain that corn a lot cheaper from foreign countries or other countries. Is that correct?

Mr. GAIBLER. I don’t know what statement you are referencing.

But, I believe that the United States has the ability to compete

very competitively with most countries in terms of corn and particularly because of the transportation infrastructure that we have

in place. That is another reason why we need to continue to focus

16

on modernizing and improving it, so that we can retain that competitive capacity.

Mr. BACA. I hope we continue to do a study and get a report back

to look at any impact CAFTA may have on us and our farmers now

and in the future as well as we continue to grow and continue to

deal with the international market.

Thank you, Mr. Chairman.

The CHAIRMAN. I thank the gentleman.

The gentleman from Nebraska, Mr. Fortenberry, is recognized.

Mr. FORTENBERRY. Thank you, Mr. Chairman. I will keep my

comments short, since they were very capably covered by you as

well as Mr. Etheridge.

I wanted to go back to the issue of barge transportation. I was

privileged to join the chairman and other Members on the trip to

New Orleans in the gulf coast region. You had mentioned 93 cents

a bushel you had heard as one peak of the transportation costs. We

had actually heard $1.10 over previous highs of 60 cents.

Again, not to repeat everything that has already been said, but

anything you can do if this testimony helps give momentum to the

initiative to untie the knot quickly by your offloading program or

others. I think, as one industry official estimated—and this is very

rough and only anecdotal—but that could result in a 25 to 30 cents

price movement on grain. Again, if LDP payments roughly equate

to 100 million percent, that is a lot of money that we can save the

taxpayers. So in the interests of restoring export markets, increasing prices, saving money, this may be a very wise investment if you

could increase your priority in this regard.

Thank you.

Mr. GAIBLER. That you very much, Congressman. We will take

that into consideration.

The CHAIRMAN. I thank the gentleman.

The gentlemen from Georgia, Mr. Scott, is recognized.

Mr. SCOTT. Thank you very much, Mr. Chairman.

I think there is a fundamental question that certainly needs to

be raised in light of the very tragic hurricane season that we have

had and that is that, in terms of our own U.S. farm prices of grain,

it is basically determined by the international market price minus

the cost of moving that grain from the farm to the market in this

country. Given the damage that this hurricane season has done in

the gulf region, particularly vis-a-vis the Mississippi River where

60 percent of our grain products are moved, what are we doing in

anticipation of the future?

My thinking is that if this happened and we had these kinds of

storms this time, given the trend, given what many of the experts

are saying, that because of global warming that this is something

that we can somewhat look forward to in the future, heavy, damaging hurricanes season after season, until and unless we can do

something about global warning. Of course, that debate goes back

and forth, but it certainly is there.

With that in mind, I am wondering if there is any thought being

given in terms of preparation in view of these hurricanes coming

and the proximity of them coming again and again, with greater

regularity and more devastation, what alternative modes of transportation do we have? Would we not be wise to begin to look at

17

maybe train routes or looking at how we can get products moved

to Mexico or back and forward, without the heavy dependence on

the Mississippi River? If we do that, what impact would that have

on pricing and what would that do to the economy, especially within the Mississippi River basin?

Each of you might comment on that.

Mr. WOODLEY. I would just like to say a couple words on that,

Congressman, that our experience was that in the current event,

in the series of hurricanes that struck, that we were able to get our

infrastructure in terms of the channels and waterways back into

service very rapidly. And so I think that we do need a lot of work

certainly on the levee systems that support the other infrastructure, that protect port infrastructure, that protect shoreside infrastructure, and allow it to get back into service just as rapidly. But

I think we had a very good record and can continue to anticipate

a good capacity to return the channels themselves and the waterways to 100 percent active service, including restoration of the aids

to navigation.

That does not mean that I believe your point is not well taken.

I certainly do believe your point is well taken, and that alternatives

and redundancies should be built into every critical national infrastructure system. I think that the reality, though, that in the case

of shipment of bulk commodities, the reality is and will continue

to be that water transport offers enormous comparative advantages

to every other kind of transportation.

Mr. SCOTT. So your concluding point then is that the best way

to prepare for the future, given the propensity of these storms coming more and more with greater regularity because of global warming, is not to look for alternative routes, but that it is within our

capacity to strengthen the infrastructure to withstand and not have

alternative routes in the plan?

Mr. WOODLEY. No, sir. I don’t discount the validity of alternative

routes and redundancy as an important point for future planning.

I do not discount that. The observation I make is that the ability

of waterborne transportation to economically move large bulk is a

characteristic of that transportation, that mode of transportation

that seems to me immutable and that will continue to be very, very

important, as opposed to or compared to any other alternative that

we could name. But I certainly would support the concept of a need

for every form of redundancy in the face of the phenomenon that

you described, which I agree with you will continue to be a feature

of our weather and the challenges that we face going forward.

Mr. GAIBLER. I would just only add that I would concur with the

statement by the Assistant Secretary, and only to amplify a little

bit, that in terms of lessons learned, you know, I think the things

that we have done were unprecedented and never tried before, and

I think, again, they were done to be temporary, short-term, try and

help get the system back up to full speed. And I think our role is

to, if this happens again on a recurring basis, to fine-tune those

kinds of initiatives so that, again, get the system back up to the

point where it was prior to the damage.

So, again, rail and truck and barge are all critical, but barge certainly has a comparative advantage and will always and should be

a predominant carrier of our bulk agricultural commodities.

18

Mr. SCOTT. Thank you. I thank the gentleman.

The CHAIRMAN. The Chair recognizes the gentleman from Kansas.

Mr. MORAN. Mr. Secretary, has there been a Department estimate of the cost of farmers in reduced prices due to the series of

hurricanes? I notice in your testimony that you talk about historic

prices, what they were a year ago and what they are today, at least

in some commodities. Is there an attribution of those reduced

prices to lack of shipping? Related to that question is, have we

been able to determine an effect upon the fuel price that results to

our farmers as a result of the hurricanes? My question is, what is

the consequence to the price our farmers receive and the prices we

pay for inputs as a result of Hurricanes Katrina, Rita, and others?

Mr. GAIBLER. The Office of Chief Economist came out with an estimate after the impacts of the Hurricane Katrina, and I think his

analysts suggested that increased energy costs could increase by

$85 million a month as a result of Katrina. And I think he has

done some further analysis in terms of looking at what the other

hurricanes have done, and plus the fact that we just had a very

strong demand for oil and fuel use.

As it relates to commodities themselves, it has had an impact on

price. But when we looked at this before Katrina as a measure, we

were looking at our loan deficiency payments for corn projected to

be about $3.5 billion. And when we came out with our last supplydemand estimate this month, we did increase those LDPs slightly

from $3.5 billion to $3.7 billion. And so while that was attributed

partly to the problems of the hurricanes, the transportation disruptions, and the weak basis, a lot of that was still on the impact of

our adjustments that we made in terms of increased production estimates.

Mr. MORAN. Is corn the only commodity that you are anticipating

an increased payment under the LDP program?

Mr. GAIBLER. No. We will probably see other commodities that

will have increased LDPs. We focused primarily on corn because

that is the one that is the issue. That is where the barge problems

are. But we anticipate—right now soybeans of course we are not

paying LDPs but we are paying LDPs on a number of other commodities.

Mr. MORAN. Mr. Secretary, finally, what is the status of the Department’s estimate of actual crop losses in the gulf region due to

the hurricanes?

Mr. GAIBLER. Well, if you look at the dollar losses, again, this

came from the Office of the Chief Economist. The total dollar losses

estimated for Hurricane Katrina were around $882 million, Hurricane Rita were $195 million, and then the drought and other related disasters in the upper Midwest were originally estimated at

$1.27 billion but they were revised down to $701 million, again because we saw that the crops were coming in much better. The corn

and soybean estimates, production estimates were raised from the

September to the October ag supply-demand estimates. So in total

then—I didn’t total it up, but we are looking at roughly $1 billion

with the hurricanes and some $700 million in losses. This is crops,

livestocks of all types.

19

Mr. MORAN. Do you expect those numbers to change? Are those

preliminary numbers, or that is a firm estimate by the Department?

Mr. GAIBLER. I think right now the numbers are fairly solid.

Again, they did do—the only re-estimate that was done was with

respect to the drought-related losses.

Mr. MORAN. Secretary Gaibler, thank you very much.

Major Riley, what, if any, are the long-term consequences to the

Mississippi River as a result of the damage from the hurricane as

that Mississippi River is a major transportation asset to our country?

General RILEY. Sir, I don’t think there will be any long-term impacts. There is clearly a short-term one in the lower Mississippi

and the ports of New Orleans. But within a day barge traffic was

moving and then within a month the deep traffic vessels were moving.

Mr. MORAN [presiding]. Thank you. The gentleman from Minnesota.

Mr. GUTKNECHT. Thank you, Mr. Chairman, and let me thank

Chairman Goodlatte. I was among those who went along on the

trip to New Orleans, and it was really a very, very interesting trip.

A couple of things that I learned that I suspect some of my colleagues don’t know and some of the folks who may be here didn’t

know, at least I didn’t know before I went down there, and that is

that what we consider to be the Port of New Orleans is actually

almost 100 miles long. So we have a lot of port facilities. The ones

at the lower end sustained considerable damage, and the ones at

the top, at least we were told, had very little damage. So there is

sort of an interesting story there.

Second, I did not know how much of our grain ultimately goes

through that harbor, how important that really is to our grain producers.

Third, let me say to the Army Corps of Engineers, we saw photographs of sort of the before and after. And I think on behalf not

only of our agricultural producers in the upper Midwest but on behalf of an awful lot of other people, we owe the Army Corps a tremendous debt because they have done an amazing job in a relatively short period of time of getting much of the river and the facilities cleaned up, because we saw pictures of very large vessels

on their sides and we saw pictures of barges upside down, and I

was pleased to see that most of that has been cleaned up in one

way or another so that ships can come through.

The other thing I wanted to mention, Mr. Chairman, seated behind the Secretary I see Bert Farrish, and I want to thank him.

He was in my district earlier this week, because we have a serious

problem, as I think an awful lot of the folks in the upper Midwest

do, in terms of LDPs that are just sort of off the charts and sometimes very hard to explain from one county to the next. So I want

to thank him for coming up there and meeting with some of our

producers and seeing if we can’t come up with a more rational way

in which we calculate those.

Finally, and I think perhaps most of the questions have been

asked that I would have asked. But one of the things we learned

when we were in New Orleans is that the port is roughly, at least

20

the south end is operating at about 65 percent of capacity, and I

think the question that we all have is, what can we do from a Federal perspective to get it back up to 100 percent as soon as possible? We can’t quantify right now, but based on what we see in

terms of the problems with low grain prices, not enough storage,

we can’t move our grain. Any idea of what we can do to get it back

to 100 percent faster? And is there any prognostication in terms of

when we will get there?

General RILEY. Sir, if I could only address our role in that. I

think our most important piece of that is bringing the hurricane

protection level back up in the New Orleans area to at least, as we

are authorized right now, to pre-Katrina conditions. That would

certainly help provide the confidence of the people in business and

industry that want to get their people back to work. And so that

is our role, and we see a pretty good assurance by December of

having an inner level of protection to allow through normal winter

conditions, and then by June being able to protect at a pre-Katrina

level of protection for the next hurricane season.

Mr. GUTKNECHT. One of the questions, and this does not necessarily relate only to agriculture. But we have heard a lot of discussion, and this is the first chance we have had publicly to talk

to the Army Corps of Engineers about this. In terms of rebuilding

the dikes around New Orleans, I have some of my constituents,

and it has been discussed publicly, how much of New Orleans can

you really protect?

General RILEY. Sir, what we are authorized of course to do right

now is protect the New Orleans proper area up to that pre-Katrina

level. And there are certainly areas that the city and State and

local communities will have to consider whether or not they want

to reoccupy. A greater level of protection of course is another question, and how extensive that wants to be. That is more for the

State and then Congress and the administration to determine. But

certainly the cost of that would be substantial.

Mr. WOODLEY. I would concur in that response. I believe that we

will find, while we do have studies under way that will provide a

great deal more information and understanding of the pros and

cons, I believe that we will find that protecting that city against

a storm similar to or even greater than the Hurricane Katrina will

be feasible but very expensive.

Mr. GUTKNECHT. I am still not clear. But when do we assume

that the Port of New Orleans will be back to 100 percent of operation?

General RILEY. Yes, sir. I cannot talk specifically to the port operation. I am sorry.

Mr. GUTKNECHT. All right. Thank you.

The CHAIRMAN [PRESIDING]. I thank the gentleman. I want to ask

Secretary Woodley and General Riley a couple more questions.

First, Mr. Secretary, quoting from your testimony, it is unlikely

there will be any long-term closures or catastrophic disruptions to

barge movements due to inadequate channel conditions. I am

quoting from your testimony. What are the key factors we should

be watching for over the next few months to see if the situation

changes?

21

Mr. WOODLEY. The thing to be watching would be Coast Guard

advisories that would be put out to limit or advise navigators on

adverse conditions that they would have to deal with in various

ways by adjusting their operations.

The CHAIRMAN. And let me get a little more specific about one

of the concerns that has been raised with us. And that relates to

the Missouri River. What is its normal contribution to the Mississippi River flows at St. Louis? And at what level would navigation difficulties develop between St. Louis and Cairo?

Mr. WOODLEY. The question is very complex, and I have come to

understand that when you speak of the Missouri River system, the

word normal does not seem to have a great deal of meaning, Mr.

Chairman.

It is substantial, and in the average year—I have not yet been

privileged to see an average year, but I keep hoping that the next

one to come will be an average or better than average year, because the drought in that system has been prolonged and profound

and has had a very deleterious effect on the livelihoods of the people in the Basin as a whole.

I will say that in a normal year the contribution is very substantial, because the runoff from the upper Mississippi is actually generally less than the contribution of the Missouri River, if I am not

mistaken about that, equal to or less than that contribution. So it

is a very important contribution to Mississippi River navigation.

The CHAIRMAN. Mr. Secretary, are you telling us that you don’t

anticipate any disruption in barge traffic between St. Louis and

Cairo as a result of the flow from the Missouri at this point in time

this year?

Mr. WOODLEY. That would depend upon on how conditions develop primarily in the upper Mississippi.

The CHAIRMAN. I understand.

Mr. Woodley. We do not anticipate it. At this time we do not anticipate it, and we are preparing to accommodate any disruption or

any potential disruption by increasing our dredging capacity in this

reach of the river between the confluence of the Missouri and

Cairo, Illinois.

The CHAIRMAN. General Riley, do you have anything to add to

that?

General RILEY. Not much, Mr. Chairman. But the Missouri River

does contribute about 2 feet to the water levels. Today the gauges

showed it 4.2 feet at St. Louis. And when it gets down to zero, that

is when the industry and Coast Guard begins to place restrictions

on barges. It is forecast to go down somewhat to this, but that is

both across the Missouri and the upper Mississippi with the

drought and dry conditions. So the unique and particular contributions of the Missouri I don’t think will be so significant as being

different from the upper Mississippi.

The CHAIRMAN. Thank you very much. The gentlewoman from

South Dakota signaled she didn’t have any questions. But none of

my questions prompted any? You are recognized.

Ms. HERSETH. Well, I appreciate that, Mr. Chairman. I appreciate your questions to the panel. With regard to the Missouri

River, representing South Dakota you understand the concerns we

have, and certainly share in the statement, Mr. Secretary, that

22

there hasn’t been a normal year, so to speak. And until we get

some decisions that may recognize some changed economies and

changed interests that have developed along the upper basin States

that have suffered the most severely from the drought, I do think

that we are going to face similar problems with Missouri River

management and how that impacts the Mississippi and the flow of

barge traffic and the impact that that has with the high transportation costs on the rest of the agricultural market. And those of our

producers in South Dakota that perhaps ship some of their commodities utilizing barge traffic down the Missouri and then in the

Mississippi remains to be seen, although we do know that there

has been an impact on the national agricultural economy.

And so, as the chairman may have mentioned at the outset, I

had the opportunity to travel with him and other members of the

committee down to New Orleans a week or so ago to talk with

some of the folks at the different grain terminal facilities. I know

that there was mention that Harvest States was probably the hardest hit terminal there, but we met with some officials with Cargill

that were talking about the concerns with the barge capacity or

with the terminal facilities capacity. And perhaps this question has

already been pursued, but do you see any improvements that have

been made since the devastation of Hurricane Katrina and where

we are that there is going to be an ability, or perhaps this committee can go forward and do something to assist as you work with

USDA and other programs that may be available there, to free up

certain barge traffic, to get upstream to be able to get better quality grade grains to blend off with some of the poorer quality that

suffered damage during the hurricane? Has that already? That

may have already been explored, but perhaps you could address

that.

Mr. WOODLEY. Yes, ma’am. I believe Deputy Under Secretary

Gaibler addressed that in the context of an earlier question.

Mr. GAIBLER. I will just amplify for your benefit. We did undertake as one of several initiatives to try and divert barges with damaged grain out of the New Orleans area early on, beginning last

month, and continuing in to this month, and we have diverted 145

barges, roughly 180,000 tons, of damaged grain to alternative locations. There is, as has been expressed here, the need for more, but

there are still several barges in the New Orleans area. We recognize that and we are willing to take another look at what we can

do to continue to help in that particular situation.

Ms. HERSETH. Thank you.

The CHAIRMAN. Thank you.

I will thank this panel again for your contribution today.

Secretary Gaibler, we have been in communication with the Department, with Secretary Johanns, and will be with Director Bolten

regarding this question of whether we are being penny wise and

pound foolish not to expend some additional dollars to dispose of

the grain on those barges in some fashion that may require some

expenditure but would save us a lot of money in terms of loan deficiency payments, restoring the market as rapidly as possible, and

not losing any more of our international sales than we have already. And I hope you would take back to the Department our

23

sense of urgency about that following our visit to New Orleans last

week.

Mr. GAIBLER. I will do that, Mr. Chairman.

The CHAIRMAN. I thank you, sir, and I thank all of you for your

contribution today.

I want to welcome our second panel: Mr. Robert Dickey, who is

a producer with the National Corn Growers Association from Laurel, Nebraska.

Mr. Timothy Gallagher, senior vice president and general manager, grain division, of Bunge North America from St. Louis, Missouri on behalf of the North American Export Grain Association.

Mr. Royce Wilken, president of the American River Transportation Company from Decatur, Illinois, on behalf of the National

Grain and Feed Association.

And Mr. Robert Kohlmeyer, president emeritus of World Perspectives, Incorporated, from Fairfax Station, Virginia.

I would like to remind all members of the panel that their full

written testimony will be made a part of the record, and ask them

to limit their testimony to 5 minutes. And we will start with you,

Mr. Dickey, welcome.

STATEMENTS OF ROBERT L. DICKEY, PRODUCER, NATIONAL

CORN GROWERS ASSOCIATION, LAUREL, NE

Mr. DICKEY. Good morning, Chairman Goodlatte, Ranking Member Peterson. Thank you for the opportunity to testify on the outlook for transportation on the Mississippi River this harvest. My

name is Bob Dickey. I serve on the board of the National Corn

Growers Association. I am a liaison to the Production and Stewardship Action Team. I am from Laurel, NE, where I grow corn, soybeans, and raise hogs and cattle.

It comes as no surprise to this committee that agriculture is notorious for its uncertainty. Crops and farm income are dependent

like no other industry on weather, politics, market trends beyond

our control or ability to estimate. Consequently, we appreciate the

committee for taking a serious look at the extraordinary transportation problems facing us this year.

Farmers move their crops and receive their inputs by barge, rail,

and truck. The competition among these modes of transportation

helps farmers receive the best price for their crops. As evident by

current conditions on the Mississippi River, efficient waterway significantly affects domestic grain prices. Even though not all corn

growers ship to the Mississippi River, all growers are impacted by

it. The price of grain I receive at my home market is largely based

on the price of grain that moves on the Mississippi River to the export markets. With more than 1 billion bushels of grain exported

by the Mississippi River, a problem with the barge movements on

the river has a rippling effect on corn prices nationwide.

Cash prices have fluctuated widely due primarily to the changes

in the local bases. The bases in Nebraska ranges from 40 cents to

67 cents per bushel. Corn’s national average price has dropped

from $1.70 per bushel in September to $1.65 to $2.05 in October.

Unfortunately, cash corn prices near the River are as low as $1.26

per bushel. Current prices are the direct result of continued probVerDate 11-SEP-98 11:02 Nov 16, 2005 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 F:\DOCS\109-18 HAGRI PsN: HAGRI
24

lems with barge movements on the Mississippi and the limited

storage capacity.

However, problems along the Mississippi River existed well before the Hurricane Katrina hit land. Investment in the inland waterway system has not kept pace with demands. The antiquated

system is in dire need of infrastructure upgrades to improve efficiency and reliability.

Additionally, the Midwest experienced its worst drought in 17

years, resulting in almost a 3-foot decrease in river levels near St.

Louis. That caused barges to run aground and forced operators to

trim payloads by up to 6 inches per barge to clear shallow spots

on the Mississippi River which initially drove up transportation

costs.

Next came Hurricane Katrina, which worsened existing transportation problems. The shutdown of the gulf ports plus the further

constricted barge supply due to loss or damage, combined with the

effects of the lower river channel and a slowdown in the northbound barge traffic sent barge rates soaring.

Barge freight continues to trade at 600 percent of tariff in St.

Louis and 850 percent from Memphis southward. Near St. Paul,

Minnesota and Dubuque, Iowa freight rates have more than doubled their 10-year averages.

To put this into perspective, the cost to ship a bushel of corn

from St. Louis to New Orleans in the weeks following Katrina

jumped from a normal rate of 33 cents to about 81 cents per bushel, according to Informa Economics. In cases where barge rates

have sustained 800 percent of tariff, which is equal to $48 per ton

or $1.34 per bushel, it costs more to ship a bushel of corn than

what the grain elevators along the river are paying for it.

As transportation costs have increased due to the backup on the

river, the orderly movement of grain throughout the rest of the

country has been disrupted. We are now in a situation where rail

cannot absorb the additional traffic necessary to move grain that

would have been transported by barge. Without a doubt, the competition between river, railroads and trucks directly impacts the

price paid for each bushel of corn.

If Katrina has taught us anything, it is that the Mississippi

River is a system. If any one component of that system should fail,

the system has lots of problems. While corn growers commend the

administration for taking a market-oriented approach to resolving

some of the short-term problems with our overstressed grain delivery and distribution system, short-term problems along the Mississippi River will continue to persist year after year if long-term

investments are not made to improve our transportation infrastructure.

Corn growers are producing 11 billion bushel crops, a trend that

will grow, yet our waterway infrastructure was built in the 1930’s

when the total corn crop for the entire country was 1 billion bushels. If we fail to move forward with much needed and justified infrastructure improvements, the world will look elsewhere for basic

food commodities. That is something corn growers and farmers

across the country cannot accept.

Thank you again for the opportunity to testify, and I would be

happy to respond to any questions.

25

[The prepared statement of Mr. Dickey appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Mr. Dickey.

Mr. Gallagher, welcome.

STATEMENT OF TIMOTHY J. GALLAGHER, SENIOR VICE PRESIDENT AND GENERAL MANAGER, GRAIN DIVISION, BUNGE

NORTH AMERICA, INC., ST. LOUIS, MO, ON BEHALF OF THE

NORTH AMERICAN EXPORT GRAIN DIVISION

Mr. GALLAGHER. Thank you, Mr. Chairman. I am Tim Gallagher.

I am senior vice president and general manager of Bunge North

America’s grain division. I am here today on behalf of the North

American Export Grain Association. I thank you for the invitation

to participate in today’s hearing and reviewing the short-term outlook for navigation on the Mississippi River and its impact on U.S.

agriculture.

As Americans have learned over the past 2 months, the Mississippi River system is of enormous importance to the U.S. economy. In measure of tonnage, the Port of South Louisiana is the

largest port in the United States and the third busiest port in the

world. The largest agricultural export by value passing through

New Orleans, through the Custom District of New Orleans in 2004

was $4.1 billion worth of soybeans, that is 62 percent of our U.S.

soybean exports; $3.8 billion worth of corn, again at 62 percent of

our U.S. corn exports; and $1.2 billion worth of wheat, 22 percent

of our U.S. wheat exports.

With roughly 1 in every 4 acres of production going into the export channels, and close to 60 percent of that going through New

Orleans, you can get a sense of why those of us in agriculture value

what we know to be our best natural comparative advantage in

trade, the Mississippi River.

Prior to Hurricanes Katrina and Rita, our industry was already

facing tightness in barge transportation. Several factors contributed to this: Low water levels, relatively strong demand for both

southbound and northbound barge traffic, and about a 9 percent reduction in the fleet size over the course of the last 7 years.

As Hurricane Katrina forced and extended closure to the Port of

New Orleans, including all 10 grain facilities, an already tight river

transportation system became somewhat desperate. For Bunge, our

grain export facility and adjacent soybean processing plant were affected as were 40 percent of our barges that were in the New Orleans area at the time. Fortunately, none of our employees were injured, our grain elevator reopened in 5 days, our processing facility

reopened in 3 weeks, and none of our barges were lost. Many in

the industry were not so fortunate. Employees lost their homes,

were scattered across the region, facilities remained idle, fuel was

scarce and the resumption of river transportation continued to

sputter.

As shown in the chart and attached in my statement, our industry continues to operate at capacities below its norm. The combination of lost days, reduced capacity, idled loaded barges continues to

present challenges for our industry and for our farm customers.

Lack of market access, increased freight costs and fuel have eroded

the farmers’ normal basis relationship to normal historical prices.

26

To illustrate this, I would like to share an analysis of freight

costs from the Boot Heel of Missouri, to New Orleans: August 31,

2003, to move a barge of grain from the Boot Heel of Missouri to

the New Orleans area cost 20.5 cents. The high in the harvest time

season in September was 28.5 cents in 2003. August 31, 2004, it

cost 25.5 cents to move that same barge. In September, the high

of 2004 was 46 cents. The day before the Katrina event, it cost 51

cents a bushel to move a barge from the Boot Heel of Missouri

down to the New Orleans area. However, in the wake of Hurricane

Katrina, freight rates soared even more, hitting a high of 97 cents

a bushel on September 8.

What is interesting to note about these barge freight increases

from 2003 to 2005 is they reflect an increasing demand to handle

industrial commodities heading north. Comparing 2003 to 2004,

imported tonnage through the Port of New Orleans increased 42

percent. Similarly, tonnages increased in the first 6 months of the

2005 versus the first 6 months of 2004 by 23 percent. These increases had a significant impact on a barge availability for southbound commodities in this harvest season.

We commend the U.S. Department of Agriculture for looking for

ways to ease the pressure in the weeks following the hurricane.

Their efforts to move cargos of damaged corn from the gulf and further efforts to provide incentives for storage utilizations should relieve some of the short-term pressures.

As we look ahead, I project the industry may return to more normal operations toward the end of the year; however, I see little

change until harvest is complete. The industry is working very

hard to work comprehensively on these complex issues in order to

make barges available for grain loading locations in the interior to

help alleviate the tightness that we are experiencing.

The river system is a primary source of competitiveness in global

markets. Many of our international competitors maintain an overall lower cost of production in commodities such as corn and soybeans. It is this freight cost advantage that our river system plays

a significant role in U.S. exports and making them competitive. We

must maintain and grow this freight advantage to maintain our

U.S. competitiveness.

This is why we believe that we must renew our commitment to

maintaining the entire river system. We are not just talking about

locks and dams. Tributary rivers are vital to the transportation

system linking U.S. agriculture to the Mississippi River. Sixty-five

percent of the commerce moving along the Mississippi River system

stems from tributary rivers.

There is very little slack in the U.S. transportation system, especially in agricultural. Rail and truck alternatives to replace this capacity and cost effectiveness of the river system are simply not existent. Moreover, shipping by barge remains the most fuel efficient,

lowest cost, overall efficient method of transporting the necessary

volume of agricultural commodities to the export market.

We appreciate the committee’s interest in this matter, and we

hope the hearing will draw greater attention to the importance of

our Nation’s inland waterway transportation system.

Thank you again, Mr. Chairman, and members of the committee,

for the opportunity to testify, and I look forward to your questions.

27

[The prepared statement of Mr. Gallagher appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you, Mr. Gallagher.

Mr. Wilken, welcome.

STATEMENT OF ROYCE C. WILKEN, PRESIDENT, AMERICAN

RIVER TRANSPORTATION COMPANY, DECATUR, IL, ON BEHALF OF THE NATIONAL GRAIN AND FEED ASSOCIATION

Mr. WILKEN. Thank you, Mr. Chairman. Good morning, honorable members of the committee. I am Royce Wilken, testifying on

behalf of the National Grain and Feed Association, commonly referred to as NGFA.

The National Grain and Feed Association is a broad-based trade

association that represents grain and grain feed-related commercial

businesses. NGFA members consist of more than 1,000 companies

comprising 5,000 facilities. I am president of American River

Transportation Company, also goes by the acronym of ARTCO,

which is a member of NGFA.

ARTCO runs a barge and vessel operation on the Mississippi

River, operating 29 shallow draft linehaul vessels, over 2,000 covered hopper barges, 12 fleeting operations, and a midstream transfer buoy. We also operate a barge repair yard in New Orleans, Louisiana. We are wholly-owned by the Archer Daniels Midland Company, and headquartered in Decatur, Illinois.

The American inland waterway system is key to sustaining the

competitive agriculture in America. Our waterways allow us to remain competitive not only on the farm but in the transportation

and delivery of our harvest to customers around the world.

Hurricane Katrina bore down on the New Orleans area on August 29, inflicting a serious blow to our agriculture transportation

system. Katrina hit the Mississippi/center Gulf region, which is

typically responsible for 60 to 70 percent of U.S. raw grain exports.

Earlier today we heard testimony outlining Katrina’s impact overall. This morning I would like to describe how it impacted my company.

Our major fleeting area is located at mile 110 on the lower Mississippi River, approximately 10 river miles above downtown New

Orleans. ARTCO’s 13 harbor tugs serve all elevators and

midstreaming buoys in the area, although we primarily service our

four elevators operated by ADM in the Ama, Destrehan, St. Elmo,

and Reserve, Louisiana area.

As you know, Katrina struck on Monday morning, August 29.

Our response began many days earlier as we carried out the action

in ARTCO’s hurricane readiness plan:

On Thursday morning, 4 days before the hurricane made landfall, we met internally to lay out the sequence of events, including

amassing extra line rigging and plastic wire ties and inventorying

fuel to ensure enough for our generators.

Over the next 24 hours, our highest priority was securing barges

and shipyard equipment using ARTCO’s personnel.

By noon on Friday, the severity of the hurricane was becoming

more evident. All employees were released to care for their family

and personal property.

28

On Saturday, we utilized linehaul crews that remained in the

harbor to continue to secure barges and other assets, lashed together northbound barges, and prepared to leave northbound for

safer waters. Over 300 barges were secured to remain in New Orleans.

At 2 a.m. Sunday morning, our last vessel departed north to

meet a flotilla of 10 ARTCO boats with barges in tow around

Natchez, Mississippi.

By working around the clock for days in advance, only two of our

13 harbor tugs remained in the harbor with only 4 employees

aboard. The remaining 218 employees left for home or evacuated

the area.

Hurricane Katrina struck on Monday at 9:00 a.m. The Mississippi River reversed flow and backed up. The river rose 15 feet

within one hour at ARTCO’s operation 10 miles upriver from New

Orleans. Over 100 ARTCO barges were hoisted onto the banks of

the Mississippi River, some loaded with 1,500 tons of cargo, others

empty. Many fiberglass covers were ripped off. One 270-ton barge

was hoisted on top of a repair drydock awkwardly straddling the

dock crossways.

On Tuesday, the United States Coast Guard reopened the river

for shallow draft vessels. Our 10 linehaul vessels which had weathered the storm near Natchez moved back into and evacuated New

Orleans. There was no communication, no personnel.

Throughout the area, barges lay aground and cargo was getting

wet. Fortunately, no ARTCO employees were missing or injured.

These 10 linehaul boats served as our living quarters, mess halls,

salvage vessels, and harbor tugs for the next month. Today, nearly

2 months later, only 75 percent of our marine employees have returned. We are supplementing much needed workers with volunteer employees from outside the region as well as from our linehaul

boats.

Although we pulled through this disaster relatively well, ARTCO

continues to produce only 75 percent of the empty barges we need

for either reload or return to the ongoing grain harvest. In other

words, our system needs to be continually emptying barges into

ships or elevators into the New Orleans area. This frees them up

to return north either reloaded or empty to be loaded again with

the current harvest.

ARTCO’s experience is representative of waterway operators

throughout the region. Each day we are moving closer to preKatrina levels, but once we achieve this our concerns will not go

away. Katrina was a terrible blow on an already weakened inland

waterway system. As I noted initially, our agriculture economy depends on a vibrant inland waterway system to maintain global

competitiveness. Unfortunately, we have systematically underinvested in our river system, failing to upgrade our locks and dams

on the upper Mississippi River system, and failing to fund basic operations and maintenance costs such as dredging. We cannot expect

a 50-year-old inland waterway system to carry 21st century agriculture.

We are grateful for the leadership the House has demonstrated

on this issue, particularly your passage of WRDA by a vote of 406

to 14. We ask for your continued support through necessary fundVerDate 11-SEP-98 11:02 Nov 16, 2005 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 F:\DOCS\109-18 HAGRI PsN: HAGRI
29

ing for our operations and maintenance. We continue to press our

case in the Senate, and we hope that this year America’s inland

waterways will receive the investment they sorely need and deserve.

Thank you for allowing me to speak today. In today’s global economy, excellence cannot end at the farm gate. ARTCO and our fellow members of the NGFA are proud to be a key part of America’s

agricultural economy. That concludes my testimony.

[The prepared statement of Mr. Wilken appears at the conclusion

of the hearing.]

The CHAIRMAN. Thank you, Mr. Wilken.

Mr. Kohlmeyer, welcome.

STATEMENT OF ROBERT W. KOHLMEYER, PRESIDENT EMERITUS, WORLD PERSPECTIVES INC., FAIRFAX STATION, VA

Mr. KOHLMEYER. Thank you. Mr. Chairman and members of the

committee, thank you for the invitation to appear before this committee and the privilege of sharing some thoughts and ideas about

the relationship between the costs of transportation, grain markets,

and the value of crops produced by American farmers.

I have spent more than 50 years in the grain industry. During

that time, I have managed grain elevators, both large and small,

including some along our inland waterways. I spent a significant

portion of my career deeply involved in export merchandising to

customers around the world. More recently, until retirement, I was

president of World Perspectives, Incorporated, a company that

serves global clients with agricultural market and policy analysis,

strategic planning, and management service. I now provide consulting services to those clients through World Perspectives.

During my career, the transportation function for grain within

the United States has greatly changed. All of the transport modes

are still here. We still use trucks, railroads, barges, and ocean vessels. But trucks have doubled in size, railroads provide whole train

service, and the cost of rail freight is no longer regulated by the

Government. Barges too have grown in capacity. Barge tows are

larger, and they are pushed by power units generating two or three

times more power. Grain used to be exported on old liberty ships

that carried 10,000 tons at most. Now, a majority of U.S. grain and

soybean experts are carried on vessels that can hold 50 to 80,000

tons.

One thing has not changed, however. Transportation costs had a

significant influence on the value of grain from the farm gate to the

end user then, and transportation costs wield at least the same degree of influence on prices today.

The aftermath of Hurricane Katrina and the devastation and

human suffering it caused in the greater New Orleans area when

it came ashore August 29 has been well documented. The impact

of Katrina on U.S. agriculture was immediate and severe, and it

can still be seen today, nearly 2 months later.

Other witnesses have spelled out in detail the importance of the

Mississippi River corridor to U.S. agriculture. Any disruption to

barge movement or export loadings will send immediate ripples upstream and all the way to the farm gate, as we have been reminded

in the aftermath of Katrina. However, for me, the real agricultural

30

story concerns the industry’s response to Katrina. The herculean

efforts, the ingenuity of elevator management, elevator workers,

who in many cases suffered personal losses, grain inspection personnel, the Coast Guard, river pilots, and the Army Corps of Engineers, plus numerous others is an untold but truly remarkable

story.

All 10 of the export elevators in that port area sustained some

damage, but only one was severely damaged. However, many lost

power. Barges filled with grain and soybeans were tossed all over

the area, some were sunk, some were not found for days, and many

were damaged and their cargo soaked by rain and floodwater. The

storm surge caused silting in the river below New Orleans, making

passage of ocean vessels upriver difficult or impossible. Yet, just 2

days after the storm struck, empty vessels began a slow crawl up

river, and less than a week after the storm grain loadings began.

By mid-September, enough loading capacity was available to accommodate the demand at that time.

The volume of grain and soybean export shipments from the Mississippi River the past few weeks have reached more normal levels,

but this has happened despite continued problems with available

barge supplies, logistics, barge movement, and shortages of rail

equipment and, above all, the high cost of transportation.

Corn values at the gulf are high, but corn values for the producer

upstream are low. The spread between the two is historically wide

and made historically wide by the high cost of barge freight, among

other factors. The result is that high prices for corn at the gulf can

threaten the competitiveness of U.S. corn in the world market,

while at the same time farm market prices for corn are so low that

loan deficiency payments are made by the Government, and they

have soared as high as 45 cents a bushel or even higher in some

locations.

It would be an oversimplification to say that the Government is

actually subsidizing part of the high cost of barge freight with

LDPs, and to say that barge freight, the cost of it has caused large

LDP payments would be equally oversimplified. There are many

other factors involved, yet there is an undeniable connection between the two.

How will the situation work out? I suspect this situation will

work itself out the way short supply situations work themselves

out in unregulated market environments. ‘‘High prices are the best

cure for high prices’’ goes the old saying, and it will apply here, too.

Ways will be found to increase barge capacity while at the same

time ways will be found to minimize barge use. And it will rain

sometime in areas that contribute to water levels in the Mississippi

River. Ultimately, barge supplies will become in better balance

with demand and freight costs will rationalize.

It is worth noting that when naturally occurring circumstances

such as storms, drought, ice, and floods do not interfere, barge capacity has generally been adequate to meet domestic and export demand for grain via the waterway system. Stagnating U.S. export

volume is not really the result of inadequate barge supplies.

I would like to tell you that demand for U.S. exports of grain and

soybeans will soon grow beyond the volume plateau of the last 20

years, but unfortunately I cannot do that. I believe that demand

31

will grow eventually and that the volume plateau will be raised,

but probably not for several years. The record for U.S. corn exports,

the annual record was set more than 20 years ago. Demand growth

for corn in the last 15 years has come from domestic sources, not

from exports.

As for soybeans, we will do well to hang on to the current export

volume in the face of South American competition that will benefit

from an improving infrastructure of its own. Increasing barge capacity will not change the outlook. More barges will not necessarily

mean more exports. But a longer term reduction in available barge

capacity, for whatever reasons, would almost certainly mean lower

agricultural exports.

The inland waterway is an enormous asset, as we have heard detailed today, not only to agriculture, but to the U.S. economy as a

whole. To retain the value of this asset, the Government must fulfill its obligation it assumed when the waterway system was created to maintain it in good working order. Obviously, the Government cannot control hurricanes, droughts, ice, and so forth that

may disrupt water navigation, but timely repairs and maintenance

will mitigate naturally caused disruptions and allow agriculture

and other sectors of the U.S. economy to draw maximum benefit.

Thank you for the opportunity to present my views on these important matters.

[The prepared statement of Mr. Kohlmeyer appears at the conclusion of the hearing.]

The CHAIRMAN. Thank you very much, Mr. Kohlmeyer.

Let me ask all the witnesses. It has been mentioned here today

what contributions rail and truck might make. Could they absorb

the additional grain supply? Would railcars and trucks be the limiting factor? Or would the cost of the railcars and trucks make it

prohibitive to move that supply of grain? Mr. Dickey?

Mr. DICKEY. Well, in my case it would be prohibitive to rely totally upon the rail and truck system, because they are maxed out

at this point in time. If you want to get a railcar in my area, it

may be weeks, maybe months, because they are contracted out

ahead of time, and I just don’t think that that is a viable solution

at this point in time.

The CHAIRMAN. Mr. Gallagher?

Mr. GALLAGHER. I agree. Availability, it was very tight in the

harvest time season. But even beyond that, I think the thing that

we must not lose sight of, approximately 90 percent of the grain

that is going to the New Orleans market by export is delivered by

barge, and that is 60 percent of the U.S. exports for both corn and

beans. So we are asking for other transportation modes to absorb

a huge amount of grain and they currently just don’t have the capacity to absorb that sort of incremental volume.

The CHAIRMAN. Mr. Wilken.

Mr. WILKEN. I would concur with that, along with the fact that

there is 18 railcars to one barge and over 50 trucks per barge. And

the sheer capacity of the infrastructure of rail and truck could not

handle that. There is capacity in the inland river system if we invest in the infrastructure and capitalize on that.

The CHAIRMAN. Mr. Kohlmeyer.

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Mr. KOHLMEYER. I seriously doubt that the railroads are capable

or in fact would want to be capable of handling a much larger

share of U.S. grain transportation, particularly headed toward export. Today, I am sure that they would view the situation as relatively short term, and probably would not see their way clear to

investing a lot of new capital to create new equipment and power

in order to max out their grain carrying capacity.

Railroads are carrying about as much grain as they seem to want

to carry, and I doubt that they are going to be a solution or a salvation for grain barge problems.

The CHAIRMAN. How much additional grain could be moved

through other ports, such as Houston, the Great Lakes, or the Pacific Northwest? We will start with you again, Mr. Dickey.

Mr. DICKEY. Well, in our case, in Nebraska, there is a volume of

grain that does go to the Northwest. But our best markets in Nebraska, as far as outside the State, is to California and to Mexico.

And currently, if we ship or send a bushel of corn to Mexico, it

costs $1.36 per bushel, and my farm gate price last week was $1.35

per bushel.

So I think we do need to look at some other alternatives. You are

right on, Mr. Chairman.

The CHAIRMAN. Mr. Gallagher.

Mr. GALLAGHER. I think some of those ports have incremental capacity. Certainly the Texas gulf has a number of facilities that are

probably underutilized. The PNW facilities are probably much

tighter with regard to capacity constraints. The Lake system also

probably has some capacity that could be utilized. But I think generally, in all those cases, what you run into is a constraint before

you ever get to the port system. And that is what we ran into in

this instance, and that constraint typically is in the transportation

market.

So to shift a significant amount of volume away from the gulf

market that has such a large share to get to these other markets,

even if they do have capacity, is just not practical in a short period

of time. It would take a number of years to build that infrastructure to get it there. And, as Bob pointed out, you wonder if the railroads really have the keen interest to do that. I think they are

probably more interested today in moving higher value commodities. And as their system is constrained, that is probably what

pays them the most money versus moving a lower valued grain

commodity.

The CHAIRMAN. Mr. Wilken.

Mr. WILKEN. Mr. Chairman, I would agree with Bob as well as

an earlier statement. I believe that barge transportation is the

most efficient, safest, most productive delivery belt, conveyer belt,

if you will, to the gulf. There are other markets out there that are

more costly in terms of cost per bushel to transfer to those markets. So we have the infrastructure available; let us invest in it and

capitalize off of it in the gulf.

The CHAIRMAN. Thank you. Mr. Kohlmeyer.

Mr. KOHLMEYER. The fact is that U.S. grain export capacity; that

is, the capacity to load vessels in the United States at U.S. ports

with grain, is considerably overbuilt and was overbuilt as a result

of some ambitions back in the 1980’s that have not proven to be

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fulfilled. So, yes, there is capacity at other ports: The Great Lakes,

the Texas gulf, even the U.S. Atlantic. The Pacific Northwest is

sort of an island unto itself and its capacity is generally mostly utilized.

But having said that, the cost of being able to use those other

loading ranges would be very substantial, would probably be so

substantial that it would have the effect of reducing farm gate

prices rather than increasing them.

The CHAIRMAN. Thank you.

The gentleman from Minnesota is recognized, Mr. Gutknecht.

Mr. GUTKNECHT. Well, thank you, Mr. Chairman, and I want to

thank the panel for being here today. You have been here a long

time, and I think most of the things that I would have asked about

have been discussed. Let me just use this opportunity, though, to

thank you for, directly or indirectly, talking about the importance

of the Water Resource Development Act.

I think the one thing that has happened as a result of this hurricane is that we have all been sort of re-reminded just how important the Mississippi River is, especially to farmers in the upper

Midwest, and I think it underscores that we have a lock and dam

system that was designed for a 50-year life span, and some of those

facilities are now 70 years old. And so whatever you can do to help

us put pressure on some of our colleagues at the other side of this

Capitol building to move that process forward I think would be welcomed, and I think this is that opportunity.

So, again, thank you for coming to testify. If nothing else good

comes out of this, if we can finally get some action on the Water

Resource Development Act, I think your time here in Washington

will have been well spent. Thank you very much.

The CHAIRMAN. The gentleman from Texas.

Mr. CONAWAY. Thank you, Mr. Chairman.

A couple of quick questions. A couple of testimonies mentioned

that the number of barges on the Mississippi are down. But can

you give me—about 9 percent over the last 7 or 8 years—a sense

of what the carrying capacity is as a result of bigger barges?

Mr. WILKEN. Congressman Conaway, the size of the barge has

increased approximately 2-foot haul-up draft. That means we are

operating 14-foot hull barges versus 12-foot hull, we can set down

in the river an additional 2 feet. Each inch equates to approximately 17 tons of product, which equates to approximately 104 tons

per foot or 208 tons per 2 feet. I think that calculation is correct.

So we have increased our productivity by using the same horsepower, the same crew members, to push a bigger barge.

Mr. CONAWAY. You and I have a problem. When somebody asks

me what time it is, I tend to tell them how to build a watch.

Nine percent of reduction in the number of barges, but today we

have a carrying capacity overall increase from—that 8-year, 9-year

period is up. Can you give me a sense of what the percentage increase overall is on that barge carrying capacity? Not individual

barges, but the total capacity.

Mr. WILKEN. I would have to research that and get back to you

on that.

Mr. CONAWAY. Are the rates back down to pre-Katrina levels and

do you have any indication of when the Port of New Orleans will

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be fully operational again, in other words, essentially fully back in

service? Any sense of the timing on that?

Mr. GALLAGHER. No. Rates aren’t back down to normal levels yet.

We have seen some increases in basis levels in the interior. Rates

have come down a little bit.

The other thing that has driven the increase in basis levels in

the interior is the delivered value at the gulf has gone up as the

gulf has had to go into the interior and bid up grain just to get it

into the system, given the low flat price of grain we have got.

In terms of when things go back to normal, it is tough to call in

this market. We are really floating in uncharted waters here. And

we have got markets two to four times what would be historical

highs.

I think as we get closer to the end of the year, things will get

better each day. But as we get closer to the end of the year, I can’t

say they are going to be normal, but they will be much closer than

where it is today. We may be operating at—I am going to say 70

to 75 percent of capacity at the gulf right now. If we can get some

of this damaged grain moved out, free up resources for barges to

move down with better grain, and improve our productivity at the

point of export, all that will be very, very helpful.

Mr. CONAWAY. Anybody else?

Thank you, Mr. Chairman. I yield back.

The CHAIRMAN. I thank the gentleman.

Mr. Gallagher, let me follow up on that. Has the USDA’s program to free up these barges filled with damaged grain been helpful in getting more barges back in the fleet?

Mr. GALLAGHER. Yes, it has. I think we can say that directionally, with a pretty decent degree of certainty in terms of absolute, in terms of what it has meant, that is much harder to find

in a market like this that we are dealing in.

So I think anything we can do to get an additional barge back

up into the interior so we can put more grain into it will benefit.

The CHAIRMAN. So you would recommend that this program be

continued to free up the remaining barges?

Mr. GALLAGHER. Yes. Both the NAEGA and NGFA members

would recommend that we move forward with additional barges.

The CHAIRMAN. And without that program, what is your company’s range of options dealing with this damaged grain inside your

barges?

Mr. GALLAGHER. One option, which the industry continues to try

to struggle with to a point now, is try to condition these barges at

the gulf. But that will just take time. And time is something that

we really don’t have much of right now, given the urgency of the

problem. We can move it back to other channels, to feed channels

or some of the ethanol markets. Again, that is finding markets to

use this stuff, and finding ways to get it there; and doing it in a

prompt fashion is very important. We can take it off the barge and,

frankly, just put it on the ground somewhere and hope you can

keep it for later use.

Or the last option and probably the worst alternative is just

hauling it to the dump. But all of those options, I think, are things

the industry is doing right now. We have even heard it is being

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burned as fuel, given the high prices of fuel that we are faced with

today.

The CHAIRMAN. Thank you.

Mr. Kohlmeyer, with over 2 billion bushels of our 2004 crops still

in storage, a large 2005 crop, what is 2006 looking like?

Mr. KOHLMEYER. Well, that is a question that I can answer.

My guess is that we will produce another large crop in 2006, although probably not quite so large as this year. The production

costs and input costs to grow corn have gone up and are likely to

stay up, and that will probably have some influence on how much

is planted.

I think it is fair to say that demand is on a rather steady cycle

of annual increases, thanks to ethanol. But ethanol is just really

kind of the new kid on the block.

The amount of corn we use in animal feed has grown substantially over the years.

Putting all that together, my guess is that next year’s carryout,

that is to say, from the 2006–07 crop year, will probably shrink

somewhat from the one anticipated currently.

The CHAIRMAN. In your testimony, you touch on the relationship

between freight rates and the LDPs. Would you care to discuss this

further?

There has been a lot of concern expressed here today that we are

being penny wise and pound foolish in terms of not expending some

money to free up these barges, which presumably would have a

positive effect in lowering the freight rates.

What impact would that have on the LDPs?

Mr. KOHLMEYER. Lowered freight rates would probably result ultimately in lowered levels of LDPs. I think there is no question, as

I said in my testimony, that there is a relationship between barge

freight rates and the rather high level of LDPs. But to say that one

causes the other or one is the result of the other really is to ignore

a lot of other factors that are involved.

But, in general, lowering the cost of transportation raises the

value of the producers’ grain, which in this case would lower LDPs.

The CHAIRMAN. Thank you very much,

Well gentlemen, this has been very helpful. Has anything I asked

prompted any other questions? If not, we will thank and excuse

this panel as well.

I have a closing statement. I want to thank participants for attending this hearing today.

Katrina caused problems with export facilities and barge traffic

at a time when rail is already near capacity and fuel prices are

driving truck freight prices even higher. The impact from Katrina

has rippled all the way up the Mississippi River, impacting the

bids farmers are receiving for their grain across the country.

It is clear from today’s testimony that we will have a very difficult situation to deal with for some time. The committee appreciates your comments and will contact you if we need additional information as we all work to ensure we can get our grain to market

in the days ahead.

And without objection, the record for today’s hearing will remain

open for 10 days to receive additional material and supplement any

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written responses from witnesses to any member posed by a member of the panel. I don’t see any objections.

This hearing of the House Committee on Agriculture is adjourned.

[Whereupon, at 12:14 p.m., the committee was adjourned.]

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STATEMENT OF ROYCE C. WILKEN

Good afternoon, Mr. Chairman and members of the committee. I am Royce

Wilken, testifying on behalf of the National Grain and Feed Association (NGFA) regarding the damaging impact of Hurricane Katrina. The National Grain and Feed

Association is a broad-based trade association that represents and provides services

for grain and feed-related commercial businesses. NGFA members consist of more

than 1,000 companies comprising 5,000 facilities.

I am president of the American River Transportation Company (ARTCO), which

is a member of NGFA. ARTCO runs a barge/vessel operation on the Mississippi

River, operating 29 shallow draft linehaul vessels, more than 2,000 covered hopper

barges, 12 fleeting operations and a mid-stream transfer buoy. We also operate a

barge repair shipyard in New Orleans. We are wholly-owned by the Archer Daniels

Midland Company, and headquartered in Decatur,Illinois.

The American inland waterway system is key to sustaining competitive agriculture in America. Our waterways allow us to remain competitive not only on the

farm, but in the transportation and delivery of our harvest to customers around the

world.

Hurricane Katrina bore down on the New Orleans area on August 29, inflicting

a serious blow to our agriculture transportation system. Katrina hit the Mississippi/

Center Gulf region, which typically is responsible for 60 to 70 percent of U.S. raw

grain exports—primarily corn, soybeans and spring wheat. Earlier today we heard

testimony outlining Katrina’s impact overall. This afternoon, I would like to describe

how it impacted my company.

Our major fleeting area is located at mile 110 on the Lower Mississippi River.

This location is approximately 10 river miles above downtown New Orleans.

ARTCO’s 13 harbor tugs serve all export elevators and mid-streaming buoys in the

area although we primarily service the four elevators operated by ADM in Ama,

Destrehan, St. Elmo and Reserve, Louisiana.

As you know, Katrina’s enormous power and final path locked in over the weekend of August 27–28, striking on Monday morning. Our response began many days

earlier as we carried out the actions in ARTCO’s Hurricane Readiness Plan.

• On Thursday morning, four days before the hurricane made landfall, we began

to implement the first step of our plan. We met internally to lay out the anticipated

sequence of events, including amassing extra line rigging and plastic wire ties and

inventorying fuel to assure enough for our generators.

• Over the next 24 hours, our highest priority was the physical preparation for

the hurricane, securing barges and shipyard equipment using ARTCO personnel.

• By noon on Friday the severity of the hurricane was becoming more evident.

All employees were released to care for their family and personal property.

• On Saturday we utilized line haul crews that remained in the harbor to continue

to secure barges and other assets, lash together northbound barges and prepare to

leave northbound for safer waters. Over 300 barges were secured to remain in New

Orleans in small groups by double lashing the barges together with 1 inch diameter

steel cable around deck fittings on the barges.

• At 2 a.m. Sunday morning our last vessel departed north to meet a flotilla of

10 ARTCO boats with barges in tow around Natchez, Mississippi.

• By working around the clock for days in advance, only two of our 13 harbor tugs

remained in the harbor with only four employees aboard. The remaining 218 employees, 69 shipyard, 95 harbor and 54 supervisory, left for home or evacuated the

area.

• Hurricane Katrina struck on Monday at 9 a.m. The Mississippi River reversed

flow and backed up. The river rose 15 feet within 1 hour at ARTCO’s operation 10

miles up-river from New Orleans.

• Over 100 ARTCO barges were hoisted onto the banks of the Mississippi River.

Some loaded with 1,500 tons of cargo, others empty. Many fiberglass covers were

ripped off and scattered, never to be found. The shipyard had one 270-ton barge

hoisted on top of a repair dry-dock awkwardly straddling the dock crossways.

• On Tuesday the U.S. Coast Guard reopened the river for shallow draft vessels.

Our 10 line-haul vessels, which had weathered the storm near Natchez, moved back

into an evacuated New Orleans. There was no communication, no personnel.

Throughout the area, barges lay aground and cargo was getting wet. Fortunately

no ARTCO employees were missing or injured.

• These 10 line-haul boats served as our living quarters, mess hauls, salvage vessels and harbor tugs for the next month.

• Today, nearly 2 months later, only 75 percent of our marine employees have returned. We are supplementing much needed workers with volunteer employees from

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outside the region as well as from our line haul boats. Although we pulled through

this disaster relatively well, ARTCO continues to produce only 75 percent of the

empty barges we need for either reload or return to the ongoing grain harvest. In

other words, our system needs to be continually emptying barges into ships or elevators in the New Orleans area. This frees them up to return north, either reloaded

or empty, to be loaded again with the current harvest. Today, for every four barges

I need, I can only get three.

As this committee is well aware, the barge shortfall which ARTCO has experienced is representative of waterway operators throughout the region. Each day we

are moving closer to pre-Katrina levels, but once we achieve this, our concerns will

not go away. Katrina was a terrible blow on an already weakened inland waterway

system.

As I noted initially, our agriculture economy depends on a vibrant inland waterway system to maintain global competitiveness. Unfortunately, we have systematically underinvested in our river system, failing to upgrade our locks and dams on

the Upper Mississippi River and its key tributaries and failing to fund basic operations and maintenance costs such as dredging. We cannot expect a 50-year-old inland waterway system to carry 21st century agriculture.

My colleagues and I are grateful for the leadership the House has demonstrated

on this issue, particularly by your passage of WRDA in July by a vote of 406–14.

We ask that you continue to show your support through necessary funding for operations and maintenance. We continue to press our case in the Senate and hope that

this year America’s inland waterways will receive the investment they sorely need

and deserve.

Thank you, Mr. Chairman and members of the committee for allowing me to

speak today. In today’s global economy, excellence cannot end at the farm gate.

ARTCO, and our fellow members of the NGFA, are proud to be a key part of America’s agricultural economy. Thank you for your interest in our business and the impact of Hurricane Katrina.

That concludes my testimony.

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