CoBank this week released its Grain Logistics Outlook: “Record Crop Meets Trade Uncertainty.” U.S. grain elevators are expected to be short 73 million bushels of upright grain storage this year amid what is shaping up to be a record harvest. Click through for the report’s highlights.
Key points
- The U.S. is bracing for a record fall harvest this year totaling 21.5 billion bushels of corn, soybeans, and grain sorghum – up 10% YoY and a new record on the heels of the largest wheat harvest in five years.
- Storage will be tight with grain merchandisers charging higher storage fees on scarce capacity and strained infrastructure. Grain elevators, though, will benefit from capturing wider carries in the futures markets while buying cheaper basis.
- Geopolitical uncertainty has weakened export programs for soybeans and grain sorghum, opening elevation capacity for corn and wheat, which have stronger programs.
- Lack of railroad cars to the Pacific Northwest and low water levels on the Mississippi River will constrain shipments, but ample railcar availability to Mexico and other destinations will support exports.
- The risk to elevators is farmers not selling or opting for delayed pricing programs. Potential market rallies may also cause steep margin calls on heavy short positions for company-owned grain.
Conclusion
- The record fall harvest will be an opportunity for grain elevators this year to profit on bigger carries, cheaper basis, higher storage fees, and higher turning of assets.
- Elevators face greater risks of storing soybeans and grain sorghum in the absence of Chinese demand. The lack of soybean and grain sorghum exports, though, will make more transportation and elevation capacity available for the strong corn and wheat export programs.
- Low water levels on the Mississippi River may restrict exports and widen basis, particularly for corn and soybeans. The lack of soybean exports to the PNW will continue to depress soybean basis, particularly across the Northern Plains.
- DP programs must be well structured and limited to account for higher risk of carrying unpriced grain for the elevator in a carry market.
- Merchandisers should coordinate with their lenders for appropriate lines of credit to account for greater bushel handles, potentially longer durations of carry, and the risk of a sudden increase of margin calls on short futures positions.
The full report can be read by clicking here.
