How Your Elevator Works

Grain News
Todd Stockdale, Grain Manager (507) 438-8535

Harvest is complete with most yields decent and the grain quality good.  I ran across a Pro-Farmer article that hit home with me and the struggles presented us this fall.  Once again all the owned storage space and leased storage space was filled to an adequate level.  We were able to ship 400,000 bushels of soybeans and about 200,000 bushels of corn during harvest to keep the doors open. The guessing game begins in July when we must decide how much rented space we will need or want to take a risk on.  In the past the goal was to never turn a customer away that needed a place to deposit their grain.  I wish that could always continue to be the case.

The next four paragraphs were reprinted by permission from an article written by Angie Setzer and published in the Pro-Farmer newsletter.

The fact remains getting grain out of the field at harvest and having a place to keep it once it is cool and dry is as important as getting it planted in the first place. As all of you know the costs of building and maintaining these facilities are not minor either. To make bins pay for themselves you hope that basis improves beyond harvest and spreads offer good opportunities for carry.

Just as with anything else in the commodity world the cost of space will hinge directly on local supply and demand. In years of tight supply availability or strong demand you will see strong basis levels paid or cheaper storage costs offered. In years of high supply or low demand space becomes more valuable hence the higher storage costs or wider basis levels.

Just as you wouldn’t pay 30 dollars more a ton for fertilizer than the current market price, an elevator is not going to or at the very least shouldn’t pay more than the going market value or give their space away for free. It is important to remember that unless your local elevator has a direct line to an end user they have to sell into the same market you are if they run out of space.

For instance, locally for me I have 2 different ethanol plants in my backyard. Many times at the start of harvest they will pay values that I cannot match. It’s not because I’m trying to undercut my producer, it’s simply because my number one goal at harvest time is to provide an open door and a place for my customers to deliver grain as it is harvested. If I pay through the nose for grain and find myself full I have to then sell grain at the current market price to keep my doors open. Therefore if I match what my local buyer is paying only to fill up and watch basis deteriorate I have 2 options, close my doors to deliveries and sit on the grain I’ve purchased, or lose money by making sales.

There was a time when leasing extra storage was a straight forward profitable business practice.  We could buy the grain at harvest hold it to river open when basis narrowed and ship. The market would usually offer us 15 cent carry to March, 20 cent carry to May and sometimes 30 or more cents carry to July.  The basis could also improve 20 to 30 cents depending on the supply and the strength of farmer holding.

The market has changed dramatically in the last few years.  The ethanol plants have flattened the variability of the local basis.  That is generally good for farmers but it is a disaster for truck elevators trying to help their farmers bring in the harvest.  When the ethanol plants get full they just close every other day till their line matches their grind. They don’t care if you are waiting to harvest.

We have to guess every fall what are customers are going to want to do?  I supported the idea with fall cash corn price below $3.00 that most patrons would want storage.   Boy was I wrong; we purchased almost half of the corn as it came in off the field.

The next big guess is how much we will be able to ship during the limited harvest window?  How fast will the ethanol plants plug and how long will the lines be at the river?  We have leased storage because we always took in grain way faster than we could ever ship out. That was good to provide customer service and used to be profitable.  Now with bin owners wanting more rent and truckers needing more to haul the profit motive for us is fading fast.

Now how do we set our pricing?  Do we offer to buy at a price we can profitably ship during harvest? That currently is not always competitive. We sell the same places our customers with semi’s do but we must add in the cost of trucking and a margin to cover overhead expenses.  We could buy at price that might be profitable in the future but that would mean basis would need to sky rocket higher as soon as we filled our space and are forced to ship to keep the doors open.

I’m sure I don’t have a clear answer on how it needs to be done to best serve everyone’s interests. What I can offer is the opportunity to discuss your grain marketing goals to help us all have a plan for marketing grain in 2017. Thank you for your business and Merry Christmas to you and your family. 

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