The Feasibility of Marketing Louisiana Soybeans in Matamoros, Mexico

Wayne M. Gauthier, Guidry, Kurt M.  |  4/27/2006 1:15:30 AM

Wayne Gauthier and Kurt M. Guidry

The search for new markets is a continuing quest. To that end, the Louisiana Soybean and Feed Grains Promotion and Research Board funded a study to determine whether Louisiana soybean farmers could net more money by barging soybeans into Matamoros, Mexico, rather than selling them at harvest to local elevators.

For years, river barges have competed effectively against trains in moving Midwest and Louisiana grains to export markets. Louisiana soybean producers appear to have the advantage of proximity to a waterway infrastructure supporting barge shipments to Matamoros through Brownsville, Texas, and a climate that allows early planting and harvesting. There is a sense, how ever, that Louisiana farmers do not reap the full benefits of these advantages. Most Louisiana soybeans are sold directly to local elevators at harvest. Sales at harvest limit opportunities to participate in value-added activities.

The Mexican advantage  
Matamoros was picked as a potential market outlet for several reasons. First, it is just across the Rio Grande from Brownsville, Texas, and accessible to Louisiana producers by either train or barge through the Gulf Intracoastal Waterway (GIW). Barges generally offer the lowest per unit costs because they can transport 50,000 to 55,000 bushels per barge compared to 3,333 bushels per rail car. Second, the GIW links all major Louisiana river grain elevators with Brownsville because it flows in an eastwest direction throughout the length of South Louisiana and intersects all of the state’s major rivers. Third, Mexico has historically been and will likely continue to be a soybean-deficit country. Since 1994, Mexico has ranked among the top three buyers of U.S. soybeans. Nearly all of its soybean imports are from the United States, and 5.83 percent entered through Matamoros. The three soybean crushing plants in Matamoros make up 7 percent of Mexico’s total soybean crushing capacity. Estimates of the annual need for soybeans in Matamoros ranged from 6.8 million bushels to 21.5 million bushels, or from 20 percent to 66 percent of Louisiana’s 1997 soybean production. Fourth, most soybean imports entering Matamoros are being shipped from 1,200 to 1,500 miles by trains from Midwestern U.S. supply points. Distances from major Louisiana supply regions to Matamoros range from 470 to 1,087 river miles and from 541 to 765 railroad miles.

Economic feasibility
Regardless of source, feasibility for the Mexican buyer is defined by the lowest landed (elevator delivered) per bushel costs. For the Louisiana producer, feasibility depends on the difference between the prices paid by Mexican buyers and Louisiana local market prices. The difference must be greater than all the known costs of exporting – plus a risk premium. The risk premium must be large enough to make producers willing to assume the additional risk and uncertainty of exporting soybeans to Mexico instead of selling directly to local elevators. At any time, that difference is determined by the relative price relationships for soybeans in Louisiana and Matamoros, barge and rail transportation rates, associated explicit transaction costs and implicit risk premium costs.

Estimated explicit costs and return relationships for eight Louisiana supply regions are presented in Table 1 and Figure 1. The implicit risk premium that will create exports is an unpredictable, producer-unique number. The explicit risk premium is the difference between the price in Mexico less the sum of the local Louisiana elevator price and the explicit costs of exporting. The producer’s decision to export instead of sell to a local elevator is the best indicator as to whether the explicit risk premium was sufficiently greater than the implicit risk premium.

Findings
Soybean production from 34 Louisiana parishes was assigned into eight supply regions. Assignment was based on distance of the parish seat from an existing elevator with barge-loading capabilities.

Table 1 identifies (1) the 1997 productive capacity of the supply region in terms of bushels and their barge and railcar equivalents, (2) the number of river and barged miles from each supply region and (3) the total estimated landed cost of a bushel of soybeans at the processing plant in Matamoros from three shipment combinations. The footnotes in the table identify the specific elements of the major components (assembly, barging, transloading and transhipment) of total costs.

Soybeans can be shipped from Louisiana by direct rail or barge to the Brownsville-Matamoros border. Barge shipment requires a transhipment by either truck or rail since the soybean processing plants at Matamoros are not situated on the Rio Grande and the soybeans must be transported inland. Soybeans arriving in rail direct shipments maintain the origin weight and product identity integrity established at loading. Thus, custom clearing border transactions costs for direct rail shipments are minimum as compared to barge shipments. Louisiana rail direct total costs for assembly and transportation from the eight Louisiana supply regions into the plants at Matamoros range from $0.75 to $0.87 per bushel.

Barged soybeans must be transferred into an elevator for subsequent reloading into either trucks or railcars for final inland shipment to Matamoros. Depending upon the supply region, the costs of exporting soybeans by barge were estimated to range from $0.72 to $0.84 per bushel with truck transhipment and $0.76 to $0.89 per bushel with rail transhipment. Of these costs, the costs of elevator transfer at Brownsville were an estimated $0.17 per bushel. Costs for transhipping grain by truck were estimated at $0.05 per bushel, and transhipping by rail was estimated at $0.09 per bushel. Therefore, the total estimated costs to transload and tranship barged soybeans at Brownsville are $0.22 to $0.26 of the $0.72 to $0.84 or about 31 percent of the per bushel total costs for barged shipments to Brownsville and their respective truck and rail transhipments to Matamoros. This cost component reflects not only the physical costs of a second handling of the grain, but also the transactions costs associated with establishing weight and product identity so that the truck or rail unit can clear customs.

The legend in Figure 1 identifies the net bushel gains and losses from exporting soybeans to Matamoros compared to selling them in Louisiana by Louisiana supply region and shipment combination. These gains and losses are estimated using the identified costs from Table 1 and an estimated average December 1997 export price of $8.47 and Louisiana price of $7.73 per bushel.

The derivations of the per bushel gains and losses can be illustrated using a combination barge shipment to Brownsville with a truck transhipment to Matamoros from the Lake Providence supply region. Table 1 indicates that this barge shipment from Lake Providence to Brownsville with a truck transhipment to Matamoros had an estimated total cost of $0.84 per bushel. Given a $8.47 export price, the Lake Providence producer would have realized a net price of $7.63 (8.47 - 0.84) per bushel from exporting soybeans to Matamoros. Given a Louisiana price of $7.73, the Lake Providence producer would have netted $0.10 (7.73 - 7.63) less per bushel from exporting to Matamoros than from selling in Louisiana.

The set of net bushel gains and losses from exporting soybeans to Matamoros instead of selling them in Louisiana suggests that only producers from the Krotz Springs and Mermentau regions using a barge shipment/truck transhipment combination would have realized any gains from exporting soybeans to Matamoros instead of selling them in Louisiana in December 1997. The magnitudes of those gains, $0.02 per bushel, appear too small to generate the implicit risk premiums needed to export soybeans into Matamoros. But, the sets of relative relationships rendering export instead of Louisiana sale more profitable can change. Under profitable exporting conditions, the set of net gains and losses suggests that the barge shipment/truck transhipment would likely be the most profitable and the barge shipment/rail transhipment the least profitable.

A final consideration is competition from U.S. Midwest suppliers. Currently, unit trains of soybeans from the Midwest satisfy Mexican demand. If relative costs and returns were to make exports from Louisiana feasible, the next question is whether Louisiana could compete effectively with Midwest suppliers. Unit train rates from the Midwest were reported to average about $0.71 per bushel. Costs for Louisiana producers to export soybeans average more than $0.80 per bushel. Therefore, Louisiana does not seem to have a competitive advantage over the Midwest.

Competitive disadvantage
Despite proximity to the market and the economics of barge transportation, both direct rail and barges from Louisiana supply points were found to be at a competitive disadvantage to Midwest unit trains in supplying the Matamoros soybean market.

In addition, there are differences in assembly costs between supply regions in Louisiana and in the barging cost structure on the Mississippi River and the GIW. Assembly cost differences are attributable to cumulative farm-toelevator distances between Louisiana supply regions. Barging costs structure differences are because of the capacity of the Mississippi River to accommodate up to 36 barges in a single tow as contrasted to a maximum tow of only six barges on the GIW. Also, the variety of economic activities on the Mississippi River creates abundantly more backhaul opportunities for barges on the Mississippi River than for barges on the GIW. Backhauls are both cost-offsetting and revenue-generating activities critical to profitability and influential in determining rates charged to shippers on the initial movement.

Wayne Gauthier, Associate Professor, and Kurt M. Guidry, Professor, Department of Agricultural Economics, LSU AgCenter, Baton Rouge, La.

(This article was published in the winter 2000 issue of Louisiana Agriculture.)
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