An Important Wildcard In The 2024 Grain Storage Outlook
U.S. grain elevators see potential for big profits in the 2023/2024 marketing year.
According to a recent report from CoBank, an abundance of corn and soybeans has resulted in cheaper basis and bigger carries in futures markets. This follows two years of inverted futures markets.Despite improved conditions for the elevators, there’s a big obstacle standing in the way of their profit potential.
“Many grain farmers have the benefit of being in a very strong cash position following last year’s record farm income levels. They have been quite content to hold on to their grain since prices have fallen,” says Tanner Ehmke, CoBank grains and oilseeds economist.
Lack of Grain Ownership at Elevators
Farmers’ reluctance to sell has resulted in lower levels of grain ownership for elevators and many are currently unable to take advantage of the wider carries and basis levels.
As a result, many elevators are charging higher storage fees and implementing delayed pricing (DP) programs. These programs have become popular as farmers wait for a rally in prices. However, Ehmke encourages elevators to use caution around them.
“Trading DP bushels comes with challenges,” he says. “Although the elevator technically owns these bushels, shipping unpriced bushels is risky since basis could tighten on DP bushels that are already sold – resulting in a loss if the elevator did not sufficiently charge for the service.”
He advises those using DP to acquire corn and soybeans now should make sure their monthly rates are adequately priced to account for the greater financial risk of selling bushels not yet priced by the grower.
Storage Outlook
This scenario, however, is not anticipated to be long term.
“Higher land rents and borrowing costs, combined with rising prices for inputs like fertilizer, will probably motivate farmers to sell as the calendar turns to 2024,” he says.
CoBank anticipates farmers will likely begin selling their crops in January, February and March ahead of spring planting and upcoming operational expenses and/or when prices reach $5/bu. for corn and $14/bu. for soybeans.
The Wildcard
When it comes to basis, any rise is expected to be limited by the large supply of corn and soybeans. At the same time, cheaper transportation rates, strong end-user demand among livestock producers, ethanol plants and soybean crushers should protect it from a significant drop.
Soybean basis in particular is strong due to a smaller U.S. soybean harvest and record processor demand.
The significant unknown, however, revolves around exports.
“The biggest wildcard that could affect the carry in basis is the U.S. corn and soybean export program, which could be awakened by a poor South American harvest, a surprise resurgence of Chinese demand, a return to more normal water levels on the Mississippi River, and weakness in the U.S. dollar,” Ehmke says.
A poor South American crop could mean a tighter basis and narrower spreads in futures – which would look similar to the past two years. A larger crop, however, would likely result in a widening of carries in basis for elevators.
