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Corn Growers Advised to 'Keep Crops Close to Home'

Corn Growers Advised to 'Keep Crops Close to Home'

19 September 2014

US - With a record amount of corn likely headed to market in the next few weeks and corn prices still very low, a Purdue University agricultural economist is advising growers to consider storing their crop on their own property if they can.

The alternatives are to pay a premium for space in a commercial storage facility or to sell for prices far below what many farmers expected at the beginning of the season, said associate professor Corinne Alexander.

None of these three options is particularly appealing, Alexander says, but keeping the crops in on-farm bins, elevators or silos and waiting for market conditions to improve makes the most financial sense.

"If you don't have storage on your farm, your next best choice might be to sell even if you have to take less than you wanted," she said.

"It's a complex equation and there are no easy answers."

Typically, the key variable in determining whether to store or sell crops is the "opportunity cost," Alexander said. That is, farmers should calculate whether they would earn more by depositing the proceeds of an immediate sale or by storing their crops and hoping for higher prices later.

But historically low interest rates right now mean farmers probably won't lose much, if anything, by keeping their grain in silos instead of money in the bank, Alexander said.

Farmers also should consider that this year's corn glut is likely to quickly fill up the region's grain storage units, making space harder to find and more expensive, Alexander said.

"Indiana has done a good job in recent years of adding more storage space," she said. "But with so much corn coming in at once it will be difficult to find room for it all."

Alexander envisions a situation where excess corn could be "sitting around in piles" while producers and buyers try to figure out what to do with it.

But Indiana is unlikely to experience the types of transportation logjams facing farmers in the Dakotas. Analysts from the public and private sectors say the state has enough rail cars and barges to move the grain.

The questions are where will the buyers be found, at what prices and when?

With such a large surplus, Alexander said, corn prices are unlikely to recover their relatively high levels of the past two years anytime soon.

Corn prices have been battered since mid-summer when it became apparent that cool, wet weather would provide ideal conditions for a bumper crop.

The latest U.S. Department of Agriculture crop production report, issued Sept. 11, projected a record national corn output this year of 14.4 billion bushels, up 3 percent from 2013. Indiana farmers also were expected to produce a record crop.

As a result, the December corn contract, the most actively traded in the futures market, peaked at $5.10 per bushel in mid-May and has since slid to its lowest level in four years. Prospects for the basis price - the cash value farmers receive for the immediate sale of their crop at the time of harvest - are equally bleak because of the massive amount of grain up for sale.

Meanwhile, global demand for corn has plateaued, at least for the short term, due in part to a healthy wheat harvest in Europe that reduced their need for American grain imports and record or near-record production in other corn-growing countries.

Domestic demand is limited by barriers to growth in the ethanol and livestock feed sectors, two of the most important destinations for Indiana corn. Ethanol producers are using about all the corn they can for the foreseeable future, and livestock operators are just now beginning to increase their herds after several down years, Alexander said.

The good news, Alexander said, is American consumers might pick up some of the slack.

"If corn is cheap," she said, "people will find ways to use it."

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