Since it's my job at DTN to watch and analyze basis moves, I have been curious as to how much grain is left on farm and when it may move. If it all moves at once, basis would likely drop like a rock and transportation could become problematic. Railroads have furloughed workers and parked locomotives and cars because demand has dropped due to lack of steady grain movement since last fall.
I reached out to some elevator managers in South Dakota and North Dakota for their insight as to how much grain is not sold and also if they believe, as I do, that we will see a "second harvest." I have seen it happen in other years when harvest was bountiful and low prices caused the producer to keep his crop at home until the following summer when he had to make room for the next batch of new crop.
Tim Luken, manager of Oahe Grain in Onida, South Dakota, told me, "As far as crops in the bin, I say we are 65% to 70% full in our area. Some of that is on delayed price (DP) contracts. There are still covered corn piles that haven't been touched since harvest and even some bagged wheat at a few elevators. These bags were filled last harvest to make room in the bins for corn."
In February, Jerry Cope, who does the grain marketing for Dakota Mill & Grain, Inc. in Rapid City, South Dakota, told me, "Farmers acknowledge that most bins are full, or near full, but low prices have kept them at bay. That said, we are seeing signs of resignation to having to trade the market at hand rather than the one they want. Our stocks in western South Dakota are mostly wheat, sunflowers, millet (other birdseed) and some corn."
This past week, Cope told me, "We agree with the latest NASS data of just over 50% left in store in South Dakota. The old benchmark for South Dakota farmers was to carry 1/4 to 1/3 from year to year. Recent years' production has been 105% to 110% of storage capacity. Add in that farmers are saying that with tighter cash flow less farm storage will get built this year and the takeaway is something has to give. Selling and farm movement has picked up in the last 30 days and we look for it to continue right up until harvest."
An elevator manager in northeast South Dakota told me Thursday that he thinks a lot of soybeans were sold on the latest rally. It wasn't necessarily physical grain movement, except for the little bit ahead of planting, but more a change in ownership with delayed price bushels getting priced and/or forward contracts being written for summer delivery. He told me, "On this last leg up especially, we noticed soybean basis widen out substantially for old crop and new crop."
As for corn, he told me that there was still plenty left to sell and that he "heard anecdotally" that some ethanol plants are short corn to grind in the next month. He said his best guess was that about 20% of old-crop soybeans were unpriced, but unpriced corn was still in the neighborhood of around 40% to 50%.
The picture is much the same in North Dakota. An elevator manger in eastern North Dakota told me there is 30% to 35% of last year's wheat still around and 50% to 60% of last year's wheat left in the western part of the state. There is 25% to 30% of last year's beans left and 35% to 40% of last year's corn. He told me he, "didn't know where we will go with it this summer; wheat, corn, soybeans. I'm not sure the farmer understands how ugly basis can get," he added.
A manager in the same area told me he doesn't think the second harvest is coming, but there will be increased grain movement in June/July but not a complete exodus. He said he didn't think farmers will sell until they have to and he didn't feel that time was here yet.
He pointed out that the industry has done an unbelievable job of bending toward the farmer's financial needs by offering free storage on grain; offering interest-free advances on that grain and giving "no payment for six months" terms on inputs -- seed, fertilizer, chemical. He said the Bank of North Dakota is offering $300 million for working capital shortfalls and some lenders are rolling last year's operating note into this year's.
A grain buyer in western Minnesota who also covers eastern North Dakota told me he thinks farmers are still holding over 50% of the corn, 40% of the spring wheat and 20% of the soybean crop. He noted it is hard to be certain because there is a lot of crop hauled to town on free DP or on unpriced basis contracts. He told me, "Many of the basis contracts have been rolled numerous times." But he added that with the recent 10-cent jump in corn, he did see more corn priced. He is in agreement with a few others that I have talked to in that he too isn't sure where all the corn and wheat will go if it moves at one time.
In the northern part of Minnesota, a manager told me that they have 20% to 30% of crop left to move off the farm. He said they had good movement of grain to the elevator this past winter when everyone was offering free DP on wheat and soybeans. Barley stocks in the country might be a little higher, he said, and anyone holding open market malting barley (not pre-contracted) has no real option to get rid of it at this time and probably not in the future. He believes there will be a second harvest as soon as seeding is completed.
USDA March 31 On Farm Stocks
In the March 31 Grain Stocks report, USDA reported that 4.34 billion bushels of corn were stored on farms as of March 1, down 1% from a year earlier. Among those are Illinois reporting 580,000 bushels of corn remaining on farm; Iowa on-farm corn stocks were at 930,000 bushels; Nebraska reported 530,000 bushels and Minnesota was at 670,000 bushels and Indiana reported 270,000 bushels of corn on farm. Since the report, the DTN cash index has gained 21 cents and those numbers have likely moved lower. However, in my opinion, there is still plenty of corn to move or price before the fall harvest.
Soybeans stored on farms are estimated at 728 million bushels, up 19% from a year ago as of March 1. Iowa reported that 155,000 bushels were stored on farm; Illinois reported 118,000 bushels and Minnesota reported 99,000 bushels. Those numbers are likely lower after the strong soybean rally we have seen recently. Since March 1, the DTN cash index has gained 90 cents per bushel.
As far as wheat, the USDA reported on-farm stocks are estimated at 320 million bushels, up 15% from March 1, 2015. As far as durum stocks, USDA estimated on-farm stocks, at 16.7 million bushels, up 3% from March 1, 2015. Since March 1, the DTN cash index for HRW has only gained 2 cents per bushel as export demand has been dismal. The DTN cash index for spring wheat has gained 20 cents and U.S. durum prices have been moving higher as mills report that Canada is "low on milling durum."
DTN Canadian Grain Analyst Cliff Jamieson said "Current Canadian government forecasts suggest we will end with a one million metric ton carryout, just slightly higher than last year’s 956,000 metric ton. We’re currently well ahead of the pace to reach our export forecast (by 240,000 mt), so I believe ending stocks will be even tighter than forecast." Jamieson also told me that he believes that carryout could be largely high fusarium stocks since farmers had a chance to sell their milling quality durum at good prices since harvest 2015.
History tells me that this could be another year where we may see summer movement of grain that might rival a fall harvest. Even if farmers continue to price out corn and soybeans, they will likely not move it until late May-June, because they will be busy in the fields.
Mary Kennedy can be reached at email@example.com
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