Kub's Den

An elevator that's willing and ready to pile grain is an elevator that doesn't have to turn away grain. It doesn't have to lose annoyed customers or lose per-bushel margins on the carry and basis appreciation on all those bushels it was able to put in an open pile, grain bag or covered bunker. It doesn't have to scramble for a shuttle train or barge to clear more bin space at a busy time of year. It doesn't have to cannibalize its local basis competition.

There are some important considerations, however. It's less risky to pile (or bag) nice dry grain than it is to pile the moldy succotash that might be coming out of Midwestern fields over the next week or so. It's less risky to pile cheaper-per-bushel grain (like corn) than it is to pile grain when each percentage point of shrink or quality deterioration loses more value (like soybeans). It's less risky to pile grain over the winter in someplace like central South Dakota, where the average February high is only 28 degrees Fahrenheit, than it is to pile grain in southern Illinois, where the average February high is 45 degrees Fahrenheit.

Even with all the risks in mind, nontraditional grain storage is being willingly embraced this year: Nebraska farmers are filling grain bags directly in their fields or piling soybeans inside old machine sheds; Illinois elevators are constructing outdoor bunkers to store millions of corn bushels; Minnesota farmers are auguring newly-harvested bushels directly onto open grain piles right beside pre-existing steel grain bins; South Dakota elevators are covering bunkers of $7 soybeans. What was once an agonizing and anxiety-inducing practice five or six years ago is now a familiar and accepted phenomenon. The cowboys and desperados of the South Dakota grain industry have been doing these things for years!

Well, not the soybean piles. Those are a new development.

There is still no bid for soybeans to be delivered by rail to the export facilities of the Pacific Northwest. Ostensibly, this is because there is still a 25% tariff on U.S. soybeans sold to China, and therefore, virtually no Chinese buying activity of U.S. soybeans. Soybeans produced, harvested and physically located in the places that typically ship soybeans to the PNW -- North Dakota, South Dakota, portions of Nebraska and portions of Minnesota -- are basically stuck. Whatever bin or pile they end up in this month, that's where they might stay until the ongoing trade war is resolved.

It's possible that harvest-timeframe basis values have remained more stable than they were in the years before grain piling became commonplace, because grain piles have been such an effective relief valve for cash market selling pressure in recent years. That's impossible to prove, but it's a theory. If an elevator has a nearly-infinite expandable storage plan, then it should feel less desperation to pay unusual freight prices or to sell into a dismal cash market. The industry's willingness to use piles and bunkers may be keeping some pressure off basis bids this year. Soybean basis is terrible -- nationwide, the average cash bid is $1.03 under the November futures contract -- but it would probably be even worse if farmers' cooperatives in those PNW-feeder states weren't willing to pile grain.

Nationwide, the capacity of grain piles has grown 40% over the past five years. As of Sept. 28, 2018, the USDA Farm Service Agency's Warehouse License and Examination Division had approved almost 900 million bushels' worth of "temporary" and "emergency" storage space. That doesn't mean there are currently 900 mb already piled up yet, nor that there definitely will be that many bushels piled up, just that there could be that many bushels legally stored in bunkers ("temporary" space) and piles ("emergency" space) in federally-licensed grain facilities. The figure also doesn't include the capacity in state-licensed grain facilities, but nevertheless, it's an eye-opening number. The trend actually peaked in 2017. Western grain-growing states (Washington, Oregon, Idaho, Montana, North Dakota, South Dakota, Nebraska and Minnesota) saw their temporary- and emergency-licensed space grow 66% from 2013 to 2017.

Iowa, of course, is the state with the largest overall volume of grain production. Its three-crop total for all the corn, soybeans and wheat produced in 2018 is expected to reach 3.2 billion bushels, without including leftover ending stocks from the previous year. Four percent of Iowa's new production -- over 140 million bushels (mb) -- could end up in a "temporary" bunkered pile at a federally-licensed commercial grain facility.

Farther east in the Corn Belt, there is much less reliance on grain piles: usually 1% to 3% of a state's three-crop total volume of grain production. North Dakota also shows a small percentage in this analysis due to its greater share of higher-value specialty crops and commercial grain facilities that aren't federally-licensed.

But in South Dakota, up to 10% of the state's three-crop total volume of grain production is likely to end up in either bunkers (118 mb of licensed space) or piles (870,000 bushels of licensed space). So far, that's down from this time last year, but the figure will likely grow before this challenging 2018 harvest is over. In 2016, South Dakota had 27.6 mb worth of licensed open pile capacity.

When the U.S. grain industry is expecting a corn crop of over 14.8 bb and a soybean crop of over 4.7 bb to pile on top of the 2.4 bb of wheat that sat in storage as of Sept. 1, it's nice to know there will be somewhere -- anywhere -- for all that grain to be held, waiting for a market.

Elaine Kub is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at elaine@masteringthegrainmarkets.com or on Twitter @elainekub.

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