Low yields mean more unused grain storage space than usual

September 27, 2011

WEST LAFAYETTE, Ind. —With poor spring and summer weather drastically reducing Indiana's expected corn and soybean production, a Purdue Extension agricultural economist says more storage space in commercial grain elevators and on-farm grain bins will go unused than in nearly 10 years.

Couple the low 2011 yields with the very low amount of crop carryover from 2010 and Chris Hurt said nearly 175 million bushels of storage capacity will remain empty in the state. That's 14 percent of Indiana's 1.2 billion bushels of permanent grain storage capacity.

"Since Indiana will end up with some of the poorest yields of any major production state in the Midwest, the reduction in crop size is going to have some pretty big implications for the grain storage industry," Chris Hurt said. "This will be the most under-utilized storage since the poor crop in 2002."

Commercial storage facilities will feel the brunt of lost revenues from projections that corn and soybean production will fall 150 million bushels short of expectations. Farmers tend to fill their on-farm storage first and haul the remainder to a commercial storage elevator or processor. Elevator managers make money from storage fees and also from buying and reselling the grain. The limited production this year means revenues will be down for storage fees and from merchandizing.

There also will be less outside storage of corn this year, Hurt said.

"In areas of the state where we have seen big piles of corn, we're not going to see the piles be as high this year, and we're not even going to see as many of the piles as we have in past years," he said.

With both corn and soybeans in short supply and high demand this year, and as grain elevators face the prospect of less income, Hurt said some might offer incentives for growers to bring in their grains.

"There's a lot of competition for available grain this year," he said. "Growers should look for opportunities for reduced storage fees at their local elevators."

The incentives will vary widely throughout the state, however, as some regions look to fare better in yields than others.

"We're certainly going to have areas of the state that are more restricted on yields and have more surplus storage," Hurt said. "Other areas of the state may have closer-to-normal yields, and in those places there will be less incentive for storage facilities to provide some kind of price break."

Another implication of excess storage capacity is an increase in basis levels, the difference in cash grain prices and futures prices. For 2011 corn, Hurt said growers could see a harvest-time basis increase of about 10-20 cents a bushel above what would be expected in a normal yielding year. In past similar situations, the increased basis level continued through the year.

While high prices should help farm incomes stay strong, grain elevator incomes will tend to be under pressure.

Writer: Jennifer Stewart, 765-494-6682, jsstewar@purdue.edu

Source: Chris Hurt, 765-494-4273, hurtc@purdue.edu

Ag Communications: (765) 494-2722;
Keith Robinson, robins89@purdue.edu
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