Grain storage costs have soared, putting Midwestern elevators and co-ops in a tough spot
Growing interest rates, high crop prices and rising transportation costs are making it more expensive to store grain — a critical step for many farmers. Economists and grain merchandisers say the market conditions leave them and farmers in an awkward place.
Private grain elevators and farmer-owned co-ops across the Midwest are spending more than ever before to store corn, soybeans and wheat.
“It's been a real challenge the last year and a half,” said Scott Harre, a grain merchandiser at TopAg, a co-op with 10 locations scattered across southwest Illinois.
The costs have reached record highs, according to a new report from CoBank, an agricultural lender. Growing interest rates, high crop prices and increasing transportation costs are just some of the factors.
The high costs leave grain merchandisers, the people buying and selling grain at elevators and co-ops, wanting to sell as quickly as possible.
“I’ve wanted to ship everything I had in my elevator today — right now — because that’s the best price,” said Spencer Janssen, the manager of Litchfield Farmers Grain, a privately-owned elevator in central Illinois. “Well, that’s physically impossible.”
The conditions are also a disincentive for end users — like a flour mill, cattle feeder or ethanol plant — to take on grain before they absolutely need it, said Tanner Emhke, an economist with CoBank and the report’s author.
“It's the hot potato, and who's gonna get stuck holding it?” Emhke said. “Well, it’ll probably be the co-op because they're obligated to hold it.”
High prices for grain is one thing, Ehmke said, but elevated interest rates make it so those storing grain for longer periods of time are in a tough position.
“You combine these two factors and what we have is the highest borrowing cost for storing grain on record,” Ehmke said.
While these factors shouldn’t trickle down to consumers, they could start affecting farmers, Ehmke said. Co-ops and elevators could begin to lower the amount they’ll pay for grain upfront in order to protect against rising storage costs.
However, this year’s awkward market for elevators and co-ops could be good for farmers, according to Chad Hart, an Iowa State agricultural economics professor, who studies grain markets.
“That is the beauty and the curse of a market,” Hart said. “For everybody that's happy in that market, there's probably another person that's unhappy.”
Crop prices have been high the last couple of years, and drought could push the market higher yet. That leaves farmers with a choice, Hart said.
“They're trying to figure out, 'Okay, should we try to take advantage of these higher prices? But at the same time, too, we may not have as much production to sell as usual’” Hart said.
That may mean farmers choose to hold back enough grain to fulfill contracts.
For TopAg’s Harre, who’s been in the grain business for more than 30 years, the market has been messy.
“It's frustrating from the standpoint you're not able to make the margins that you intend and think you should be able to make,” he said. “(It’s) not really any fault of your own from the standpoint of you’re just getting beat by the situation that’s being handed to you.”
Freight rates, which remained stable for decades, rose sharply over the last year. And, he said, the futures market for grain has been “inverted” for the third year now.
Normally, merchandisers could sell grain at a higher price than it was purchased at. With current conditions, futures contracts are selling for less and further penalizing elevators from holding onto grain.
“It's worth more in January than it is in February, and it's worth more in February than it is for March,” Harre said. “Shipping grain as fast as you can into an inverted market — we can’t catch up, so to speak.”
There are opportunities to make money, Harre said, but the tough part is making the right moves at just the right time.
He and other grain operators are keeping a close eye on the Federal Reserve and the weather. Fed officials have hinted they would consider more interest rate hikes. Meanwhile, much of the Midwest is experiencing deepening drought.
Eastern Nebraska, central Kansas and parts of Missouri face the worst conditions, according to the U.S. Drought Monitor. Drier conditions are threatening in Iowa, Illinois and Indiana.
“The next four weeks are going to be critical on whether we’re going to have a good corn crop or not,” Harre said.
This story was produced in partnership with Harvest Public Media, a collaboration of public media newsrooms in the Midwest. It reports on food systems, agriculture and rural issues.