OMAHA (DTN) -- The Mississippi River basin's bone-dry winter is bad news for exporters at the Gulf: River levels are dropping and once again the Army Corps of Engineers' shrunken budget for dredging the lower Mississippi River means restrictions on how much cargo ocean-going vessels can carry.

The Army Corps at New Orleans has a $72.6 million budget this year to clear silt accumulations from the river bottom, said Sean Duffy, executive director of the Big River Coalition, which consists of shippers, river pilots and other maritime interests. The Corps needs about $70 million more to maintain the river's congressionally mandated 45-foot depth, which it hopes to obtain from two bills that passed late in 2011, the "megabus" appropriations bill and the Disaster Relief Appropriations Act that also funds levee repairs.

"Because of last year's inadequate funding, this year is really the first year we start with a channel that's not properly maintained," Duffy told DTN in a phone interview. Up until last year, the corps made dredging the Mississippi a top priority and redirected funds from other sources to keep the channel maintained because of its economic importance.

Louisiana's congressional delegation sent a letter to budget director Jacob Lew requesting the $70 million of funding. The letter said that reduced dredging last year resulted "in heavy silting, draft restrictions, and economic uncertainty. The problem continues to worsen as we are already seeing restrictions on the draft of vessels entering and leaving the mouth of the Mississippi River, and the Corps must act immediately to address this issue."

The maximum draft has been reduced to 44 feet, but Duffy could see that dropping to 40 feet in a week or so. That 40-foot level is crucial for agriculture exports destined for Asia via the Panama Canal because if it gets any lower, those ships will have to lighten their loads.

ECONOMIC IMPACT OF REDUCED DREDGING

Soybeans and agricultural products are the most affected exports when dredging is reduced on the Mississippi, a study released earlier this week by the Big River Coalition found. If the channel clearance is 38 feet, as opposed to the normal 45 feet, soybean exports would fall 14% and corn exports drop 2.6%. The restrictions on draft -- how deep a ship sinks due to its load -- mean 73 more ocean-going vessels carrying soybeans and 17 more carrying corn. It costs about $2 million per ship to travel from New Orleans to China, the report stated.

"I've heard agricultural folks say there's a 13-cent-per-bushel cost savings by coming down the Mississippi River," Duffy said. "And when you start nickel and diming it, the reduced draft impacts them so that maybe it's only a nickel cost savings to them. And that takes away their international competitiveness with other world markets."

The study shows that if producers of the country's top 10 export commodities -- corn, soybeans and soybean oil are on the list -- absorb the extra shipping costs, "American producers, mostly farmers, could lose $445.14 million in direct losses in production. The ripple effect, or secondary spending effect, could add another $414.11 million." The secondary effect represents losses to other businesses within the supply chain such as grain elevators and barge companies.

Mike Steenhoek, executive director of the Soybean Transportation Coalition, said the study's estimates largely reflect what the STC has found in its studies.

"You get these multimillion, billion-dollar numbers and sometimes it's hard to understand whether those figures are valid or not," he said. "Our research has shown in the past that by and large that's the way agriculture works. When you have a transportation disruption or cost escalation it's the farmers who absorb the majority of that cost."

The draft restrictions could also eliminate more than 8,000 jobs. State, local and federal governments stand to lose $115.1 million in tax revenues.

Not to mention that the list of top 10 imports reads like a farmer's shopping list: crude oil, iron ore, phosphate, fertilizer. Dredging restrictions would lighten quantities imported, cutting supply and eventually raising input prices.

AS RIVER LEVEL DROPS, RESTRICTIONS LOOM

Last year, floods washed 60 million cubic yards of silt -- enough to fill the Superdome 13 times -- downriver. That's almost double the average of 36 million cubic yards.

The ability to clear that silt, or not, affects how heavily ships can be loaded and, thus, their profitability. Ships like to maintain a draft of 45 feet in the lower Mississippi. Some require up to 3 feet in addition to their draft clearance, which means they'd only be loaded to 42 feet if the channel's maximum draft clearance is 45 feet, according to the Big River Coalition's economic study. Because much of the grain shipped through the Gulf is destined for Asia and must pass through the Panama Canal, maximum draft on those ships is 39.5 feet.

Right now, draft depth on the Southwest Passage between the Mississippi River and the Gulf is restricted to 44 feet, and inbound ships with drafts over 40 feet can only enter during high tide.

"I would be quite surprised if we don't have more restrictive restrictions coming up soon," Duffy said. "We're looking for it (water levels) to start to drop a couple of tenths of a foot a day. The reality is right now, we could see a 40-foot maximum draft recommendation over the next week or so without some unforeseen change."

More water isn't going to be making its way down to the lower Mississippi any time soon. DTN Senior Ag Meteorologist Bryce Anderson said that 99% of Minnesota and 40% of Iowa are in some phase of drought right now, compared to 5% and zero percent last year respectively.

River gauges at St. Louis show the river's stage, which differs from river depth, is lower than last year. On Jan. 12, 2011, the river stage at St. Louis was 6.25 feet. On Thursday, Jan. 13, 2012, it was 2.69 feet, according to Army Corps data. The National Weather Service forecasts it will decline further, to about 1.9 feet, by next week.

Russell Errett, who works in the water control division of the St. Louis Army Corps district, said ice jams upriver and in the Mississippi tributaries often cut river volume to a trickle in the winter, so the current water level isn't all that unusual. What's unusual is that it's been so warm and there's very little snow pack across the basin. The spring thaw doesn't look as if it will bring as much water to the river system as normal unless weather patterns change, he said.

The combination of accumulated silt and dropping water levels means the channel is losing depth fast.

"The best thing for us would be to have, over the next couple of weeks, word that that $70 million has been secured for New Orleans so that the corps can start responding with dredge contracts," Duffy said. Under the current budget, the Corps could afford to hire one hopper dredge, whereas it would take four to keep river depth maintained, he said. The Corps isn't expected to start dredging until February.

River users shouldn't have to fight for supplemental funding every year, Duffy said. Shippers pay a tax on imported goods that goes into the Harbor Maintenance Trust Fund, which should have about a $6 billion surplus, except Congress has re-appropriated much of those funds for other purposes. Duffy, along with Louisiana's slate of legislators, hopes that Congress will pass the RAMP Act, a law that would prevent Congress from using money collected from the import tax for anything other than the intended purpose, maintaining the nation's ports and waterways.

A copy of the economic impact report can be found here: http://bigrivercoalition.org/…

Katie Micik can be reached at katie.micik@telventdtn.com

(GH/AG/SK)

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