LAKE CRYSTAL, Minn./CHICAGO, Ill. (Reuters) — U.S. elevators are filling up so fast with a bumper harvest that they are storing crops in the open and refusing delivery from farmers who don’t have contracts.
The scramble is a reflection of the exceptional yields and weaker than expected U.S. exports that continue to affect farmers, storage operators and traders.
The supply glut means the outlook for farm incomes and prices might get even bleaker than now painted by official forecasts.
Growers who are still hoping to wait out the downswing want to store as much of their crops as possible, but elevators are rejecting spot deliveries because of a lack of space, in some cases for longer than farmers can remember.
“We’re out of storage,” said Richard Guse, a Minnesota farmer who also co-owns a grain elevator.
“Our next best option is to find a place to sell it, so you get that harvest pressure.”
Minnesota, Iowa and Nebraska, which account for a third of U.S. corn and a quarter of soybean production, have produced record yields thanks to near-perfect conditions after bad weather early in the growing season suggested that yields could drop.
As a result, farmers in southwestern Minnesota are paid 15 cents less per bushel for their corn and soybeans than they would if there was enough space, said Ed Usset, grain marketing economist for the University of Minnesota’s Center for Farm Financial Management.
It is resulting in an even deeper dent in farm incomes, considering that the cash price for corn in the area is about US$3.25 a bushel, already well below the estimated $4 production cost, Usset said.
The squeeze, which is caused by storage bottlenecks, comes as South American farmers plant massive crops this fall, adding to record global soy inventories and near-record corn stocks.
A strong dollar is weighing on U.S. exports, crop prices are already down 50 percent from their 2012 peaks and farm incomes are expected to drop 36 percent this year, according to the U.S. Department of Agriculture.
Poor returns could prompt farmers to idle some of their less-productive farmland. They may also cut back on fertilizer or premium seeds, which could lower yields.
For the time being, farmers are struggling to make space for record harvests or trying to sell it, even if it means taking a further hit.
Crystal Valley Cooperative, which owns elevators in southern Minnesota, sold grain and loaded it on trains at harvest for the first time in years instead of waiting until after harvest to get better prices.
“We gave up a margin opportunity, but just to make sure we could handle everything,” said grain division manager Jeff Spence. “
Prices for next spring deliveries are at least 23 cents per bushel higher than spot prices.
The co-op’s large rail-loading terminal in Madelia, Minn., temporarily stored 200,000 bu. of soybeans in the open air for the first time. The move risked damage from rain, which is a cost the elevator would bear.
As well, a smaller elevator in Lake Crystal, Minn., emptied out a machinery shed to store soybeans.
Crystal Valley gained new clients after rival co-op Working for Farmers’ Success refused to take soybean deliveries from growers in southern Minnesota and northern Iowa without binding contracts, Spence said.
Mike Minnehan, WFS’s vice-president of operations, said the restrictions were necessary because farmers wanted to pay to keep crops in the company’s storage facilities without selling them.
“There wasn’t a lot of pre-selling (by farmers to the elevator), so you didn’t have an opportunity to haul it out as it was coming in,” he said.
Minnehan said the company might make exceptions now that traffic is slowing and the harvest is winding down.
Elevators cannot sell crops in storage and move them to processors and ethanol plants until farmers agree to sell.
The crisis may encourage farmers to prepare for big harvests by signing forward contracts to ensure they can make deliveries or by securing temporary storage, Usset said.
The feed grain glut is a boon for hog and poultry producers, feed makers, soy processors and ethanol plants in the western Midwest because it gives them some of the lowest costs in years.
Some of the more fortunate, who like Minnesota farmer Andy Pulk still have storage space, continue to hold out for better prices. Pulk is hoping that corn futures will rise to $4.50 per bushel from $4 for the futures contract representing the next harvest.
“It’s not that I’m hoping for a $6 home run, but I’m hoping for a base hit,” he said.