GREENWOOD VILLAGE, COLORADO, U.S. — Average grain elevator margins are expected to be relatively normal this year for most of the Midwest, but elevators remain cautious about that outlook, according to a new report prepared by CoBank’s Knowledge Exchange Division.
The report, “Grain Elevator Outlook 2018/2019,” noted that trade disruptions and large crops are expected to test the storage capacity of several elevators, especially in the Northern Plains of the United States.
“While soybean margins will likely be weak in the near term, the market fundamentals of corn will support strong corn handling margins,” said Will Secor, economist with CoBank Knowledge Exchange. “Additionally, wheat margins will be strong as elevators benefit from healthy carry on old grain blended with this year’s quality crop.”
In the report, Secor indicated that U.S. storage capacity is projected to be pushed to the limit in several regions this year. He said regional storage surpluses have started to emerge, reflecting a slow Midwestern harvest that has increased corn yield losses to around 10% to 15% as well as an acreage shift in favor of soybeans.
“Slow soybean exports will force many elevators to store more soybeans longer,” Secor said. “This will increase storage costs for many elevators due to the higher price of soybeans relative to corn and wheat. An additional soybean wrinkle is farmer storage of soybeans. If farmers have storage available and have unsold soybeans, they will look to store them until prices rebound. This is atypical and reduces the harvest draw for elevators. If significant soybean bushels remain on farm, then soybean basis will likely face downward pressure throughout the marketing year that will limit basis appreciation.”
There is risk to storing soybeans, though, Secor said. He pointed to the commodity’s high oil content, which increases the potential of spoilage. To avoid spoilage, he said soybeans should be stored in bins with adequate aeration. Soybeans left in piles or ag bags face significant spoilage risks if left unattended for any length of time, he said.
Another factor at play is U.S. trade policy, which Secor said has discouraged the construction of new storage.
“Steel and aluminum tariffs that went into effect in March have raised the cost of steel for grain bin construction by 25% to 33%,” he said. “As a result, many elevators are holding off on making these storage expansion decisions until tariff issues are resolved.”
Transportation, meanwhile, is expected to have a neutral impact this year, according to the report.
“Elevators in the Northern Plains face a wild card this year due to the trade dispute,” Secor said. “New and unique trade routes will be explored in response to the lack of soybean trade with China.”
He said elevators are shipping soybeans from the Northern Plains to St. Louis, Missouri, U.S., where they are then loaded on to barges and exported through the Gulf. But the cost to transport soybeans this way is high, Secor said, and current infrastructure also is not currently capable of handling all the exports that would typically be sent to China. Instead, he said elevators located near the Canadian border may look to ship soybeans to Canada, a country that may be more likely to ship soybeans to China.
“It is unclear what volumes will move through these non-traditional routes,” Secor said. “This should be closely watched.”
Truck driver costs, availability and quality also will remain an issue for grain elevators, according to the report.
“A strong economy and low unemployment will keep truck drivers in high demand,” he said. “For elevators that truck most of their grain, higher diesel prices again in 2019 and higher truck labor costs will drag on margins.”