Too much bounty for the bins:

There’s a downside to record harvest

by Mike Kroll

Ask any 10 agricultural “experts” to speak on any aspect of the agriculture market and you are likely to get 5 to 10 different and carefully qualified opinions. The agriculture industry is just that volatile and seems to defy simple predictions. But this year there is little or no disagreement that we are in the midst of a record corn harvest. The most recent USDA estimates of the 2007 corn crop put it upwards of 13 billion bushels. When you couple this huge harvest with the increasing importance of ethanol and the resultant storage requirements to insure year-around availability and the significant difference between the current market price for corn and the much higher price a farmer can obtain for future corn delivery, you confront a very real issue of storage capacity for this harvest.

Will farmers in western Illinois face a shortage of space at area grain elevators? Are some farmers actually leaving corn temporarily unharvested and standing in their fields because they have no place to store it?

According to a market research report from Advanced Trading of Bloomington released Wednesday morning, the huge 2007 corn crop now means that Illinois faces a shortage of 590 million bushels of corn storage space as compared to the previous estimate of 385 million bushels. The shortage of storage space is even worse in Iowa where that state’s corn harvest is now estimated to exceed available storage space by 607 million bushels. Nationwide, the USDA estimated that including corn remaining in storage from the 2006 harvest on September 1st there was nearly 20 billion bushels of corn in storage nationally with weeks of the 2007 corn harvest yet to be completed.

Nevertheless Darrel Good, an agricultural economist with the University of Illinois Extension Service, wrote in late August, “On the surface, it appears that issues of storage capacity will not be any more severe than in 2005 (which was greatly impacted by Hurricane Katrina interrupting the flow of grain out through the Gulf of Mexico). …Regional storage issues could be more severe than implied by [this year’s production and storage estimates].”

Iowa State University agricultural economist William Edwards noted recently that recent changes in the ratio of the market and future price of corn to that of soybeans have led to additional acres devoted to corn production in 2007. That combined with record bushels per acre in this harvest is placing a significant strain on available corn storage in Iowa. Edwards says that only about one-third of Iowa’s corn crops are marketed immediately at harvest (September-November) with two-thirds or more being stored and held back to take advantage of higher spring and summer future prices.

Locally in western Illinois, farmers are enjoying the record corn crop despite mostly minor losses caused by the severe wind that flattened some corn crops in August. Brothers Randy and Martin Anderson are partners owning Grain Store Elevators in Galesburg, Alexis, Alpha, Abingdon, Henderson, New Windsor, Ophiem, Viola and Wataga with a total storage capacity of 14 million bushels company-wide. They agree that storage capacity for the 2007 corn crop is an issue statewide but not really much of an issue locally. “We are seeing a record local corn crop in western Illinois this year,” said Randy, “and current estimates are that statewide Illinois will be short storage space for 700 million bushels of corn but in this area nearly all producers should be able to find available storage within a 20-mile driving radius of their farm.”

“Most of the real shortage of storage space is in southern central Illinois or farther south in the state,” added Martin. “There is no question that storage capacity is an issue in other areas and we have been contacted by farmers and grain elevators outside of this area about available storage space. We expect to be able to handle the storage needs of our regular customers and even new customers but by harvest-end it is likely that our storage capacity will be full.”

“The ethanol industry is probably the strongest factor impacting the corn market in 50 years,” said Randy. “The huge and growing demand for corn generated by the ethanol industry has pushed prices up even as we experience record harvests. But the best prices are often found in futures six to nine months from now. Local producers are perhaps more fortunate than in other areas of Illinois because during the 1970s and 80s people like us and the Twomeys greatly expanded storage capacity in western Illinois. They [the Twomey Company] probably have more than twice our storage capacity and there are a good number of other elevators in the area as well.”

Martin confirmed that while the late summer storm did cause some corn crop damage, most of the area farmers have been able to harvest their corn crop with little field loss, maybe four or five bushels less per affected acre than in non-affected planted acres. He also notes that agricultural economics are a mysterious art that defies rational explanation but some factors affecting corn pricing are becoming clear. Certainly the demand for corn by ethanol producers has been an upward force in corn prices but Anderson says you also need to look at the current state of the dollar and foreign corn crops. “China, the Ukraine and Australia are all experiencing weak corn harvests and the currently weak American dollar makes our corn very attractive for export.”

The Andersons say they receive 95 percent of all their incoming grain during the eight-week fall harvest season and much of that corn will sit in their storage facilities for months. “With todays market price for corn at just about $3 per bushel and next March and April futures selling for about $3.60 per bushel, many farmers will figure to pay the extra storage fee and still reap additional profit by holding corn off the current market. Our company is engaged in a market balancing act in which there is no shortage of surprises and unforeseen events, storage capacity is just one of those factors. We are constantly evaluating our investment in both storage capacity and the efficiency of our loading and unloading capabilities and it is likely we will be expanding and/or modernizing both in the near future.”

10/4/07