Using grain bins as a marketing strategy has a lot of appeal this year, as the farm markets hover at or below cost-of-production levels. Some farmers choose to use storage to help capture higher cash basis prices later in the season or to help with marketing grain to local buyers such as ethanol plants, soybean processors, or livestock feeders.
This fall, will U.S. farmers have enough storage capacity? It’s interesting to note that USDA data comparing the time frames of 2000-2004 and 2010-2014 show increases in on-farm storage (17.6%) have not outpaced increases in corn production (28%).
In 2015, farmers were told to store grain and to wait for a spring market rally. Spring came and went without a rally. The desire continues to keep the old crop locked in the bin and to wait for higher prices.
Pete Meyer, PIRA Energy senior market analyst, says there is more proof that U.S. farmers are still holding onto a lot of old-crop stocks, namely corn, headed into a new harvest season.
“When you look at it from a year-over-year basis, Iowa farmers are still holding on to a tremendous amount of corn,” Meyer says. “They have 120 million bushels more in storage this year vs. last year. It’s a big number.”
In its June 30 Quarterly Stocks Report, the USDA estimated that as of June 1, U.S. corn stocks totaled 4.45 billion bushels, up 15% from June 2014. Of the total stocks, 2.2 billion bushels are stored on farms, up 22% from a year earlier. Off-farm stocks, at 2.17 billion bushels, are up 9% from a year ago.
More specifically, two of the major corn-producing states, Illinois and Iowa, have large amounts of old-crop corn still being stored on-farm.
Iowa farmers are holding onto an estimated 480 million bushels, up from 360 million bushels last year at this same time.
In addition, Iowa’s combined off- and on-farm corn storage is up 150 million bushels vs. a year ago.
Meanwhile, Illinois farmers have 330 million bushels stored on-farm, up 50% from a year ago. Plus, Illinois’ combined off-farm and on-farm storage totals 845 million bushels vs. 566 million a year ago, up 50%.
“I can understand Illinois farmers still having a lot in storage, because they had such a big crop last year.
But it could create a problem this harvest season,” Meyer says.
For soybeans, the USDA sees June 1 stocks at 625 million bushels vs. the trade’s expectation of 670 million bushels and up 54% from the June 1, 2014, stocks of 405 million bushels. On-farm stocks totaled 246 million bushels, up 126% from a year ago. Off-farm stocks, at 379 million bushels, are up 28% from a year ago.
So why are there so many more bushels of corn and soybeans on hand vs. a year ago? That is mainly due to prices falling in 2015. Also, U.S. production keeps growing, and corn exports were set back in 2015 due to China buying less. Global production of corn and soybeans continues to increase, giving foreign buyers more options to source those two ag commodities.
Grain storage trends
In the U.S., grain storage is measured in two ways: on-farm and off-farm.
Research indicates that although the ethanol boom and the recent boom in farm incomes have enabled more farmers to invest in bins, on-farm storage has not increased to the point widely believed.
David Widmar, Agricultural Economic Insights director and blogger at ageconomists.com, recently noted that 55% of total grain storage capacity (on-farm + off-farm) in the U.S. is on-farm. However, prior to 2000, the share of on-farm storage was near 58%. (The highest share of on-farm storage was recorded at 58.3% in 1992.)
“Since then, levels have been trending lower,” Widmar says in the article, “A Look at Trends in Grain Storage Capacity,” published in early June.
By state
The share of on-farm vs. off-farm storage varies from state to state. For instance, while Kentucky, Minnesota, Missouri, North Dakota, and South Dakota all have on-farm storage levels over 65%, according to USDA data, farmers in Iowa and Illinois only store half of the grain while commercials store the other half. In Indiana, on-farm grain storage shares equal 61.9% with the rest stored off-farm.
2015 storage
Looking toward this fall’s harvest, storage shortages could occur based on farmers’ location, Widmar says.
“For instance, farmers in Kansas and the Dakotas who experienced 150% of average yield last year will have a big challenge this year if they see another big crop. Anytime you have multiple big crops, the risk of storage issues grows,” he says.
The grain industry is also hoping transportation issues get resolved to release the pressure of shipping the expected big 2015 crops, Widmar says.
Another major factor that could decide how much grain is stored is the direction of the market.
“All farm operations have to decide this for themselves. If funds are tight, they will sell more quickly. If they have financial flexibility, they could hold onto multiple crops,” Widmar says.
