Further north, spring wheat basis in the Northern Plains is falling hard as well; durum and spring acres are up 5%, about 800,000 higher this year. The terminals at Duluth/Superior and Savage, MN hold nearly 26 million bushels of carryover spring wheat, taking up 20+% of all the delivery space in those markets before spring wheat harvest even begins in the Northern Plains! Corn and soybean production in these states will be about as big as last year and space will be a problem here as well.
The Corn Belt will also have logistics issues, from Iowa to Indiana, but that region has long experienced managing deficit space. The Western and Plains states will be the area where shock and awe may be the reaction of many farmers and managers as elevators fill and reality sets in.
Taking care of business
Building new space is a lagging response, but it’s underway. (USDA storage statistics don’t yet reflect the additional space that Plains farmers and elevators have added this year.) This will alleviate some of the crunch but there will still be widespread problems. Managers may be able to lease some farm bins before everything fills. Consider forward-selling harvest basis against grain already purchased to reduce basis exposure. Transportation costs also reflect the growing concerns. October BN shuttles, for example, were quoted in mid-July at $400 car, compared to $225 in 2009. November shuttles were recently quoted $313, about the same as last year. Begin locking in freight where possible. Review storage and Delayed Price rates. Rates that are “below market” put you at risk of having your space filled with low-revenue stored grain and force you to miss the potential to fill with better paying basis ownership.
There is more CRP acreage that may come back “on the market” in the years ahead, yields will trend higher, and the global demand for grains and oilseeds will continue to climb. U.S. crops will rise with that demand and the Plains will see their share of ever-bigger crops. Demand for working capital and credit will rise with the crops. Revenue will have to rise to justify the construction of even more bins, legs, dryers and load-out capacity to handle this grain. Will your firm be ready?
Bumper crops that overrun elevators bring a lot of frustrations and challenges, but it sure beats listening to the wind whistle through that empty space again …