Good harvest brings marketing, storage issuesHarvesting the big wheat, corn and soybean crops will be a challenge. Marketing them could be an even bigger one.
By: Jonathan Knutson, Agweek
Harvesting the big wheat, corn and soybean crops will be a challenge. Marketing them could be an even bigger one.
“The infrastructure that’s in place will have a hard time dealing with all the grain,” forcing farmers to make some tough decisions, says Frayne Olson, crops marketing specialist for the North Dakota State University Extension Service in Fargo.
Selling grain now can bring a reasonably attractive price, he says.
“I don’t know if anyone will too upset at selling corn for $4 (per bushel) or soybeans for above $9 (per bushel),” he says.
But producers might fare better financially by holding off on sales, provided they have space to store grain, he says.
That’s because of the unusually high basis, or the difference between the local cash price and the futures market price. The higher the basis, the less money that actually ends up in farmers’ pockets. If the basis falls, cash prices could rise.
Blame the high basis on a rare combination of short-term reality and longer-term hope.
Poor crops in Russia created expectations for greater U.S. exports, pushing up the futures price
At the same time, the U.S. market is trying to absorb a lot of grain. Some 2009 corn finally is being marketed, and a extremely good wheat harvest is nearly wrapped up.
Even more grain soon will hit the market. The harvest of record or near-record corn and soybean crops is just beginning.
That’s overloading U.S. grain markets and pulling down cash prices, widening the basis.
Winter wheat woes
Most affected is winter wheat, with its basis soaring to near-historic highs of $2 and more per bushel.
That reflects, in part, the poor Russian harvest, which skewed the normal flow of world wheat exports and puts more pressure on U.S. Gulf Coast ports, Olson says.
“They’re just having a hard time dealing with the changes,” he says.
Eventually, the market will work things out and the winter wheat basis will drop, potentially giving producers’ higher profits, he says.
But many farmers have stored winter wheat and are hoping to free up those bins to create storage for soon-to-be-harvested corn and soybeans, says Randy Englund, executive director of the South Dakota Wheat Commission.
Olson expects the basis for corn and soybeans will widen when they’re harvested, increasing pressure to store those crops in bins now occupied by wheat.
However, selling the wheat isn’t appealing, given the high basis and big discounts for low-protein wheat, Englund says.
Grain elevators’ dilemma
Grain elevator officials are facing tough choices this fall, too.
They don’t want to turn away business, but their storage capacity is limited. Piling grain outside is an option, though bad weather could hurt the grain’s quality, Olson says.
“They’re between a rock and hard place,” Olson says of grain elevators.
Elevators can do only so much, say Steve Strege, executive vice president of the North Dakota Grain Dealers Association, and Bob Zelenka, executive director of the Minnesota Feed and Grain Association.
“We’ve been adding storage for years. It just never seems to be enough,” Strege says.
Elevators will do their best to accommodate customers, particularly longtime ones, but storage inevitably will be a problem, Zelenka says.
Keep storage concerns in perspective by remembering years with poor harvests, Olson says.
“This is a nice problem to have,” he says.