The following is an article from Reuters:
U.S. grain handlers, already burdened with big wheat inventories, are bracing for a mammoth corn and soybean harvest that starts in a few weeks across America’s heartland.
Merchants will have to find room for 17 billion bushels of corn and soybeans — the largest U.S. harvest in history. A recent spike in U.S. exports after drought-stricken Russia announced a ban on grain exports should ease some of the storage pressure — but not all.
“I don’t see the dire situation that I thought we had 60 days ago. But it is still going to be fairly acute if the crops are as big as we are talking about,” said Joe Christopher, a veteran grain merchandiser for Crossroads Co-op in Nebraska.
Grain facilities east of the Mississippi River are already plugged with soft red winter wheat as big storage premiums in futures markets created by the CME Group’s variable storage rate plan entice firms to store, not sell, SRW wheat.
Wheat stocks at elevators eligible for CME futures deliveries are up 70 percent from a year ago to 78 million bushels — nearly one-third of the 2010 SRW harvest.
That takes a significant chunk of storage space away in Corn Belt east of the Mississippi River. Moreover, SRW wheat is not expected to move from eastern elevators or farms any time soon given the lucrative returns that grain firms and farmers capture by keeping it tucked away.
So the best chance of wheat moving will be in the west, where country elevators are also stuffed with hard red winter wheat after two bumper summer harvests of low protein wheat.
“You know what a snake looks like after it eats a rodent? That’s exactly what our grain market is going to look like for a few months,” said Christopher, who is also a director at the National Grain and Feed Association, a grain handlers’ group.
THE CUP RUNNETH OVER
The United States is the world’s biggest grain supplier, ranking first in wheat and soybean exports and accounting by itself for more than half of the world’s corn exports. But this year’s record supplies will test the country’s highly developed network of truck, rail, barge and grain elevator handling.
The United States has about 9,000 commercial storage facilities. Total U.S. storage capacity on and off farms is 21.8 billion bushels, according to 2009 government data. That does not account for storage construction ahead of the new crop.
Total stocks for the three main export grains — corn, soybean and wheat — will reach an estimated 21.3 billion bushels during harvest. That does not account for smaller U.S. crops such as rice, sorghum and barley, which need space too.
“For the first time since late 1970s, U.S. grain elevation capacity will be fully subscribed,” said Kevin Kaufman, group vice president, ag products, for BNSF Railway.
“It’s not a crisis for agriculture if people recognize it and prepare to manage it,” Diana Klemme, vice president at Grain Service Corp in Atlanta, said of the coming harvest.
Grain merchants often pile mountains of corn or soybeans on the ground with covered tarps during harvest, then turn around and load out those supplies first to unit trains bound for processors, export terminals or feedlots. With luck the Midwest will have a warmer, drier-than-normal autumn that will make it easier to mound grain, industry sources said.
“The good news is that the crop appears to be early this year, which will give us a little more time to get it all done. That will eliminate some of the storage problem,” said Hal Reed, NGFA chairman and president of the grain and ethanol group at The Andersons, a big Toledo, Ohio, grain merchant.
“The western belt has the storage issue. That’s where the big wheat crops are and where a big corn crop is coming,” said Roy Huckabay, grains analyst with The Linn Group. “Timing will be everything.”
U.S. WESTERN RAILROADS SEEN AS A KEY
Grain merchants say the wild card for success or failure in moving more than 130 million tonnes of U.S. grain exports in the coming year will be “logistics,” meaning barge and truck availabilities but especially railcars and diesel locomotives.
“Our main concern at this point would be how efficiently those trains move in and out of the export terminals,” said Paul Hammes, a vice president of ag products with Union Pacific rail. “Getting the turn once the train gets into port is going to be the biggest variable for us.”
The spotlight will be on the grain states west of the Mississippi River, which see commodity flows to West Coast ports and ethanol plants as well as flows into and out of Canada and Mexico and to the Texas and Louisiana Gulf ports.
Rail rates to ship grain for August, September and October have already spiked to highs last seen in the fall of 2007.
“You’re talking about 25 to 30 cents a bushel cost in freight that wasn’t there last year,” said Christopher.
One question is whether exporters will pump up their wheat bids high to spark country elevators to move hard red winter wheat, which accounts for half the U.S. wheat crop.
“With rail costs what they are the country will make every effort to store every bushel some place. If those costs come down everybody will get in a big hurry to ship,” Christopher said. “If they can’t, you’ll continue to have basis problems.”
“For our railroad we anticipate full export programs for the PNW, Texas Gulf and Lakes,” BNSF’s Kaufman said. “We have committed the resources to meet this opportunity.”