What is in this article?:
- Louisiana's Port Allen grain facility leased by Louis Dreyfus.
- Lease agreement requires massive upgrade of facilities.
- Through-put at facility expected to increase price farmers receive for grain.
“At the end of the day, working with (Louisiana) Gov. (Bobby) Jindal’s office, I requested that the LSU AgCenter, working with the Department of Economic Development, do a study on the port,” says Strain. “I wanted a realistic, hard, look at the overall economic impact of the port – specifically for the farmers and the region.”
For more, see study.
Mike Salassi, LSU AgCenter economist, was an author of that report and says Cargill’s initial lease was for 30 years. “It has been renewed in subsequent years, but I am not aware that any outside bids from other companies were ever solicited.”
“Cargill has been leasing the elevator for a base lease of around $275,000 annually with a bit over 7 million bushels of capacity,” says Bollich. “That’s a song for that elevator.”
“If you look at the basis history prior to about 2000, Cargill was pretty competitive in their bids for grain at Baton Rouge,” says Salassi. “They were using the Baton Rouge facility as a primary export facility. So, they were very competitive buying grain. The basis at Baton Rouge below the Gulf price for corn and soybeans was 10 to 15 cents per bushel in the 1990s.”
After Cargill bought out Continental Grain and began using elevators at Reserve and Westwego as primary export facilities, “the basis widened and the prices at Baton Rouge really dropped off,” says Salassi. From 2007 through 2010, “Cargill’s grain prices at Baton Rouge averaged $0.64 per bushel below the Gulf price for corn and $0.77 per bushel below the Gulf price for soybeans.”
Salassi says “the grain volume declined dramatically in Baton Rouge. In the 1990s, through-put volume at the port regularly exceeded 1 million tons. However, over the past 10 years, Cargill’s volume at Baton Rouge averaged less than 350,000 tons, as the Baton Rouge facility had ceased being their primary grain export facility.”
In its bid to remain at Port Allen, Cargill proposed paying $5 million in rent annually for 10 years with a 5-year option. Of the $5 million per year in rent, $3 million could be converted to capital improvements.
“So, they could pay $2 million in rent and $3 million in improvements annually,” says Salassi. “There was a limit of $30 million in total capital improvements with a minimum of zero – so, they could do nothing to improve the facility.
“Dreyfus, meanwhile, proposed a 20-year lease with an additional 10-year option. They’ll pay a minimum of $1 million in annual rent plus additional rent based on volume, which could bring the rent to the port up to $2 million.”
The “important thing” according to Salassi: Dreyfus proposed spending $75 million to $100 million in capital improvements on the facility. “On the initial 20-year lease, they proposed spending $75.6 million by the seventh year. In order to get the additional 10-year option, they proposed spending $100 million by the fifteenth year.”
Once the numbers were crunched, Salassi was not surprised with the results. “In our study, we converted Cargill’s 10-year and 15-year proposals and Dreyfus’s 20-year and 30-year proposals to annuity equivalents. That’s the way to compare investments of differing lengths equally. Dreyfus’ numbers came out higher. Annualized total outlays to the port -- in rent and capital expenditures -- were estimated to be $5.15 million to $5.24 million annually for Cargill compared with $5.28 million to $7.29 million annually for Dreyfus.”