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What does increased storage mean?

Agriculture.com Staff 06/22/2007 @ 12:11pm

There are numerous estimates as to how much storage capacity has increased over the last couple years.

By some accounts, 2006 saw an increase of over 150 million bushels and 2007 could see an increase of over 300 million bushels. When talking about a 12 billion bushel corn crop, this may not seem like much. However, when comparing this increase in storage capacity to carryout, it could make a significant difference in how cash grain will be traded and priced in the year ahead.

The need to harvest in a timely manner may justify the rationale to build storage. In addition to facilitating harvest, the economic rationale behind storage is to hold grain and reap the benefits of higher prices and/or basis improvement. It looks likely that storage will be a strong alternative in the year ahead. Why? Simply put, when taking the increase of storage capacity and dividing it into carryout, this would suggest that there will plenty of storage facilities that will likely hold at least some grain into late winter or even summer in the year ahead. Basis levels could make a significant improvement during that window, in order to pull supply out of storage. The same rationale can apply to the wheat and soybean markets as well, due to tightening supplies.

In the end, if supplies remain tight and storage capacity increases, expect more volatility. Be vigilant for both price and basis opportunities. The same is true for buyers. If basis is wide, typically at harvest or on big price rallies, then use these opportunities to lock basis.

If you have any questions or comments, please contact Top Farmer at 1-800-TOP- FARM, ext. 129.

There are numerous estimates as to how much storage capacity has increased over the last couple years.

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