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Shortage of grain bins expected this fall

Agriculture.com Staff 05/17/2006 @ 9:49am

With normal growing conditions in 2006, expect storage space to be at a premium this fall, according to Steven Johnson, farm management field specialist with Iowa State University Extension.

"Many parts of Iowa saw early planting which increases the likelihood of new crop yields, but expands the risk of crashing old crop corn and soybeans with new crop," indicates Johnson.

Johnson expects basis to be wide for both crops come late summer and fall across much of the state. If old crop bushels are not priced and moved aggressively by late August, Johnson anticipates both on-farm and off-farm storage to be beyond capacity at harvest. For many Iowa locations not impacted by regional weather problems, Johnson predicts a large number of corn bushels to be piled outside at harvest again this fall.

While the ethanol demand will help in the long run, the delay in new plant openings will back up even more bushels stored both commercially and on-farm. The market will reward those who are willing to store bushels beyond the harvest months, as additional demand for bio-fuels will increase demand. However, holding old crop bushels in commercial storage will result in higher per bushel costs, initially adding to the wide basis problem and accelerating the storage crunch anticipated. The carry in the deferred futures price months will provide an incentive to store, especially corn.

However, the carry alone may not be enough to cover commercial storage costs unless higher prices and/or better basis opportunities emerge. This will be especially true for soybeans, as the ending stocks on September 1st are likely to be record large and the lack of both old and new crop sales appear common for many farm operations.

Additional storage will likely be the long-term marketing solution for many producers, as the ethanol industry triggers an increase in demand and producers respond with more corn acres. However, only a portion of these bushels can be delivered at harvest and most ethanol plants only have two to three weeks of storage on-site.

According to Johnson, "The likelihood is that harvest basis is going to continue to be wide in the future because ethanol and bio-diesel plants don't need all their bushels at harvest." Producers and co-ops will be forced to store these bushels beyond the harvest months or face a wide harvest basis.

Johnson expects the number of grain production contracts to increase dramatically statewide that will allow producers to manage both futures price and basis risk, yet commit those bushels to delivery at some point in the future. The use of crop insurance revenue products such as Revenue Assurance and Crop Revenue Coverage compliment the ability for producers contracting grain prior to harvest to manage both the risk of crop production as well as futures price.

With normal growing conditions in 2006, expect storage space to be at a premium this fall, according to Steven Johnson, farm management field specialist with Iowa State University Extension.

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