The second-largest corn crop on record is coming off the ground: where will all that grain go? While total U.S. storage capacity is substantial, some parts of the Corn Belt are facing tighter conditions than others as harvest rolls ahead. Guy Allen, Senior Economist for the International Grains Program at Kansas State University, says storage concerns vary widely by region.
“This year, we have a bit of a dichotomy, the finish in the Western Corn Belt, Western Kansas, Western Nebraska, Oklahoma, Texas were exceptionally dry. So space and logistics weren’t so much a problem in those areas. But when you get to Central Western Corn Belt, they’re taking off some pretty good sized crops there and space is a concern.”
Allen says understanding the challenge starts with understanding just how much grain storage infrastructure exists across the country.
“Total grain storage and warehousing space at the start of this year is about 25 and a half billion bushels of total storage capacity scattered out across the grain belt and the major producing areas. And we sort of break that down into two components, on-farm storage space and off-farm storage space. And on-farm capacity is about 13.6 billion bushels, about 53 percent of that total storage capacity is on-farm. And then there’s about 11.9 billion bushels or roughly 47 percent of total space, which we refer to as off-farm, or I think about it as commercial country elevator sort of space.”
Even with billions of bushels of storage available nationwide, some states are expected to face much tighter conditions than others this harvest season.
“This year, Missouri is really a fairly tight space. They’ve got 117% of grain looking for capacity, so we’re a bit of an overflow there. Look at Kentucky, it comes in at about 113. Ohio’s coming in at about 110. Indiana and Iowa are about 109 to 108 in that sort of range. And Illinois and Nebraska, surprisingly, are looking at pretty much even space to storage. Not so much if you look at it on a state basis, but knowing Illinois and Nebraska, their variability in production, they will have regional areas that will be tight space and other areas that are not. And then, as I said, in the Western Corn Belt – Kansas, the Dakotas, and even Minnesota, are less than 100 percent. So, not so much a storage space issue there.”
When on-farm and commercial storage begin to fill up, it can have a direct impact on producer marketing decisions.
“If your on-farm space fills up, your country elevator fills up, then they need to actually sell that grain to the elevator, because the elevator can’t move grain through that they don’t own. So, the title changes hands, but as they move it forward, they’ll hedge that up and then give the producer the opportunity to price that in the future. The other options producers can have, if they don’t like the price, they can forward sell the grain, particularly if the basis level is attractive, and then buy back the underlying futures, or engage with an option strategy to give them opportunities to price that grain in the forward markets. Now, each of those different options have costs. If you’re going to store the grain on-farm, you have storage and handling charges, as well as interest. Same way, if you put it in the elevator, you have the elevator storage charges, and then you have to figure the opportunity cost of if I would have sold that and paid off some debt on interest on that. So, it’s a cost-benefit thing, and most growers sit down with a sharp pencil and a calculator and figure that out a bit.”
It’s not just farmers adapting to a large crop. Grain elevators also have a number of tools available when storage capacity becomes limited.
“If their elevator gets full, they’re going to be tight space, then they look for alternatives. As I said, they may move that grain through and forward sell it and hedge it up, or if the cash basis and that forward curve basis gets cheap enough, or the forward curve gets steep enough, they may look at temporary storage, such as bags, piles, ground piles. If it gets real expensive, they’ll just put a ground pile out. A lot of elevators these days, I know my local co-op at home, they’re calculating capital expenditures every year for their next five years to continue to build space. Just the way the production curve has gone with improvement and yields around the states, most of these country elevator guys are planning for expanding their storage capacity in an orderly way as they go forward.”