Cash Market Moves

It's in the Bag: Extra Grain Storage Needed This Crop Year

Mary Kennedy
By  Mary Kennedy , DTN Basis Analyst
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Pictured is wheat stored in silo bags in fields north of Glenburn, North Dakota. Pictures courtesy of Jeff Kittell, merchandiser for Border Ag and Energy, Russell, North Dakota

It's not very often you see wheat stored in silo bags in farmers' fields and outside elevators in North Dakota. In fact, some farmers and elevators actually loaded wheat out of bins and put it in silo bags to make room for their soybean harvest because they have lost their new-crop market that normally ships to the PNW. Because of the current trade war, the only home for soybeans is either a processing plant or heading south to the Gulf or St. Louis. However, that market could fill up fast with the added traffic, leaving soybeans homeless.

Storing any grain in silo bags requires the grain is as dry as possible before storing it. While silo bags are sealed, they can leak if there are any tears or punctures in the plastic and/or if the bags are stored on wet ground. If animals break in to the bags, moisture could get in and spoil the grain.

It's not just North Dakota looking for extra storage. Elevators and farmers in the Midwest have been getting creative in finding storage space such as renting empty warehouses, adding concrete slabs, then adding aeration and covering the pile. Some farmers are even using machine sheds on the farm. It's pretty much the "any port in the storm" theory this year.

In the case of the farmer, storage costs this crop year will increase. Their local elevator may increase the cost of delayed price (DP) contracts, if that elevator will even issue one this harvest. A DP contract allows the producer to establish a final price at a later date. DP contracts usually have service fees based on length of contract, space availability, rail performance and market conditions. Once delivery is made to the elevator, title of grain passes to the buyer and has no price protection. DP contracts are not considered "storage" or issued a warehouse receipt. This contract is also referred to as NPE, no price established, or PL, price later.

A shuttle loader in North Dakota told me he has heard of "some pretty high DP charges in southern Minnesota and further, with large drop charges (flat fee) of 20 cents per bushel." At his elevator, during harvest, soybeans and corn will be cash or basis only, while one of his stations has some room for DP at 5 cents per month, but farmers need to call ahead.

At Sun Prairie Grain in Minot, North Dakota, their website posts a soybean DP charge of 8 cents per month with no minimum until July 31, 2019. They also offer DP on sunflowers, but of their seven locations, only one location is taking any DP at this time. Wheat, corn and all other commodities are cash only.

Valley Ag Partners, with five locations in western Minnesota near the North Dakota border, posts on their website that their storage charge for soybeans is a flat fee of 10 cents per bushel and then 5 cents per month after that.

Minn-Kota Ag Products in Brekenridge, Minnesota, also near the North Dakota border with five locations, has posted this on their website:

"MKAP's 2018 Soybean Storage Program is effective September 10, 2018.

*10 days free storage from date of delivery.

*$0.15 minimum charge through December 1, 2018 (flat charge from 10 days post-delivery through Dec 1, 2018)

*$0.07/month after December 1, 2018 until beans are sold

*For example, beans delivered October 5, 2018 and sold on January 1, 2019 would have a total storage of $0.22 ($0.15 minimum + $0.07 = $0.22)."

The Arthur Companies, Arthur, North Dakota, with seven locations in North Dakota said this in their harvest letter posted on their website concerning soybeans:

"We have little recourse for (soybean) shipments in the near-term. The Gulf market is a possibility, but there is a "wall" of soybeans to get past if we want to ship down there, and transportation costs are not conducive for favorable sales values (the reason we don't typically ship down there). To start harvest we will be running a price-later program for soybeans. We will be charging 8-cents/month with no minimum charges. This is higher than our typical 5-cents/month charges. We want to be as fair as possible. With large futures carries, uncertainty of future shipments, a finite amount of bin space, and incurred costs of piling and bunkering beans we believe this to be an equitable storage program for this fall. If/when the marketplace resets we will readjust DP grain programs."

Farmers need to check with their local elevator before they haul any grain in they may want to place on a DP contract, to be sure space is still available.

FARMERS FACE FINANCIAL UNCERTAINTY

I asked George B. Sinner, senior vice president ag & business banking, Cornerstone Bank, Fargo, North Dakota, about the storage situation and uncertainty facing farmers this crop year.

"Regarding storage, my experience is that most lenders will extend operating loans based on inventory being stored," said Sinner. "In most cases, the farmer will take a CCC loan on farm stored bushels, giving the operating lender some comfort that the bushels are there. Most prudent lenders will likely require that CCC loan proceeds be used to pay down the operating loan but those same lenders will often release some funds for expenses."

Sinner said he thinks there will be a great deal of consternation over proceeds this year (and next) "as farmers come to realize that there won't be enough funds to cover all the bills. I have encouraged our lenders to meet with farmers as soon as possible so that we can develop a plan."

On another note, Sinner pointed out that Dr. Frayne Olson at NDSU Extension put together a great spreadsheet to analyze the costs of storage, how much "carry in the market" or "rise in the price" the farmer will need to come out even. https://www.ag.ndsu.edu/…

Sinner said at the conference he attended where Olson spoke, Olson made it pretty clear to a group of bankers there are not many options this year and storing corn and beans could very likely cost the farmer more money than selling now.

If you look at the current DTN soybean basis map and the daily DTN national average soybean basis, you will see soybean basis is at its weakest level in at least 11 years. Moreover, since soybean harvest is not in full swing yet due to weather delays, that basis could weaken even further as harvest pressure sets in and end users get their fill.

"The long and short is (in my opinion) that today's farmers need 1) A risk management plan that fully understands their costs and breakevens; and 2) Professional marketing adviser that works with them daily," said Sinner.

"Today's farmer could be going into an extended period of low prices where best management practices will be the key to survival."

Mary Kennedy can be reached at mary.kennedy@dtn.com

Follow her on Twitter @MaryCKenn

(CZ)