KANSAS CITY, MISSOURI, U.S. — As fields in the U.S. Corn Belt dry out from plentiful early-October rains, producers are redoubling efforts to harvest a record soybean crop before the onslaught of wintry weather.
China, normally the largest importer of U.S. soybeans, remains largely on the sidelines due to a protracted tariff war with the United States, meaning a vast quantity of U.S. supplies will carry over from the 2018-19 marketing year, leaving the United States literally full of beans.
Industry experts said storage costs for that hefty backlog of soybeans will be at a premium and the commodity will fight for available storage space with large corn and wheat crops also in the mix.
“It’s going to put a lot of pressure on the grain storage system in those states where you have the most grain,” said Stephen Nicholson, a food and agribusiness analyst and vice-president of Rabobank AgriFinance. “Capacity utilization will be higher again this year because you have a huge bean carryout, you still have a pretty decent-sized corn carryout too, only two- or three-hundred million bus lower than what we had a year ago, so it is going to strain the storage system for sure.”
Storage capacity issues likely won’t come to a head until the weather-delayed harvest advances further. The soybean harvest in the 18 major states was 38% completed by Oct. 14, down from 47% in 2017 and 53% as the recent five-year average for the date, according to the U.S. Department of Agriculture.
“One thing that’s probably helped a little bit with the storage situation is that the harvest has been delayed in a number of states because of wet weather,” an industry source said. “If we would have had more normal harvest weather, drier weather, there would be a lot more beans coming in without the outlets we’ve had for it in the past couple years.”
The USDA, in its January Grain Stocks report, said U.S. on-farm storage capacity increased fractionally from Dec. 1, 2016, to 13.45 billion bushels on Dec. 1, 2017, the most recent data available. Iowa continued to lead all states with 2.1 billion bushels of capacity, followed by Minnesota, which could handle 1.55 billion bushels. Those states, plus Illinois (1.47 billion bushels), Nebraska (1.18 billion bushels) North Dakota (900 million bushels) and Indiana (850 million bushels) account for 60% of the nation’s on-farm storage capacity.
The decimation of the Chinese export program for soybeans that normally would load mostly in the Pacific Northwest has left that region without bids or offers for more than 60 days, as no other countries are loading cargoes there. That shifted the primary route for soybeans to rivers and transportation lanes funneling south toward the Gulf of Mexico. Storage space limitations will be most prominent in the Dakotas and other grain acreage areas further from those Gulf routes that lack a significant crush presence.
“We’ve got some business, we just need to redirect a lot of it,” an industry source said. “The North Dakota, South Dakota, western Minnesota beans that were always a tributary to the West coast are going to have to find a new home.”
Producers in those areas may turn in larger numbers to temporary storage solutions, such as grain bags, also known as silo, sausage or harvest bags, which allow producers to store grain outside while shielding it from precipitation. The bags are commonly used in South America and less frequently in the United States, although more have been seen in recent years. If bags are used for soybeans, the crop will be harvested “extra dry,” he said, to cut down on damage while in storage. Far more likely is that near the end of harvest, hardier corn supplies will be shifted to sausage bags to maximize permanent housing for soybeans, which are more fragile and store better in a climate-controlled environment where they can be stirred.
Meanwhile, some will benefit from $3.6 billion the USDA is authorized to distribute to soybean growers struggling in the wake of the tariff-lessened soybean export program as part of a $12 billion package that also will benefit other agricultural sectors. The payments are based entirely on production totals rather than unsold supplies or other factors. For now, farmers will receive $1.65 per bushel on the first 50% of their production. Around Dec. 1, the USDA will recalculate their trade models and determine if that $1.65 is still an appropriate payment.
“When they first ran it, we didn’t have NAFTA solved,” Nicholson said. “Now NAFTA’s done, there’s a gentleman’s agreement if you want to look at it that way with Europe, so you’ve got a lot of trade issues off the table that won’t be part of the model now. The potential is there for that number to go down, maybe it’s a little less now because we’re still shipping soybeans to China, we’re still shipping soybeans someplace in the world, so the next 50% payment will be based on that new number they run.”
China’s sharp reduction in soybean imports would have wide-ranging implications to the U.S. market in almost any environment. But the U.S.-China tariff war is being waged in a year likely to see a record soybean crop.
The USDA forecast 2018 U.S. soybean production at a record 4.69 billion bushels, which, if realized, would represent a 6% increase from 4.411 billion bushels a year ago, according to the Oct. 11 Crop Production report. Soybean yields appear set to pop as well. Based on Oct. 1 conditions, the USDA forecast the average soybean yield at a record-high 53.1 bushels per acre, up 3.8 bushels from 2017.
Those numbers would be less daunting from a physical storage space perspective if not for large corn and wheat harvests.
To the relief of many market participants, the downturn in exports hasn’t been as severe as feared. Export inspections showed more than 120,000 tonnes of soybeans went to China last week. There has been talk of Brazil further increasing U.S. purchases because they’ve sold far more soybeans to China than they otherwise would have, pushing smaller buyers to buy U.S. soybeans. Some U.S. supplies may even be making it to China via a circuitous route.
“It’s similar to the beef pipeline to China through Hong Kong,” Nicholson said. “There’s been a lot of chatter about seeing more U.S. shipments to Canada, Japan, Indonesia, Philippines before beans find their way to China.”
Finding space to store grain could have been a bigger issue were it not for a recent rally in prices that indicated soybeans are flowing a little bit faster than analysts expected a month ago.
“If bean prices would have been $8 or lower, they’d have probably been storing them on the farm or in elevators,” an analyst said. “But this has maybe helped a little in the rally in beans, at least in the area where harvest is running near normal, that those beans may be moving off the farm and in transit faster than they would have with lower prices.”