COLUMBUS, Ohio — Stockpiling rather than selling appears to be the growing trend for grain producers looking to get the best deal from their corn crop.
Matt Roberts, an Ohio State University Extension agricultural economist, said that several factors, including the weather, transportation problems and a record harvest, are driving profits in the form of grain storage.
"It's very profitable to store simply because there is a great demand for storage," said Roberts. "For producers who have on-farm storage, the more storage you do have, the better."
Impacts from Hurricane Katrina, transportation disruptions and the second largest corn harvest on record are all issues driving growers to store now and sell later.
"We are still seeing some of the after-effects of the disruption on the Mississippi River from Katrina. One issue is the disruption of barges and the continuing shrinkage of the fleet. We've had very little barge building since the 1970s. Barges are nearing the end of their useful life. Also, we continue to have rail transportation issues. Just having enough cars and having them in the right places is a problem," said Roberts. "To top it all off, we have a 10.8 billion bushel harvest of corn this year. That's a huge number of bushels to move through marketing channels and any inefficiency, any delays are going to really back up that whole marketing chain."
Such factors are dropping the price of corn, currently anywhere from $1.50 to $1.60 — below the cost of production.
"Corn prices may continue to fall a little from here, but I don't think we are too terribly far from the bottom. At any rate, producers are not going to get excited at selling at these prices. I believe we'll see sales slow as soon as harvest passes and rebound in the spring," said Roberts. "Sell your corn at the elevator today versus January? It may be advantageous to wait. For example, there's a 30 cent premium in some areas of Ohio if you can wait until January."
Despite the issues surrounding corn production, eyes should really be on the soybean crop, said Roberts.
"I'm more worried about soybean prices falling than I am about corn," said Roberts. "Soybean cash prices are currently about $5.40, but I believe there is a real possibility the prices will fall, and we won't see the low until about March or April."
Roberts said that high prices of nitrogen fertilizer might drive producers to switch from corn to soybean production. Analysts are predicting a 1.5 million to 3 million acre switch from corn to soybeans next year. The result would likely weaken 2006 soybean prices.
Additionally, Roberts speculates that the current soybean prices are being based on the probability of a short South American soybean crop — a prediction that he believes is too early to make.
"The prospects for price after harvest are very dependent on the prospects of South American soybean production. This year we have seen Brazil reduce its acreage and dryness develop in Argentina. My worry with U.S. soybeans is that I believe current prices are already assuming a significant amount of harvest disruption in South America, which I believe is too early to back up," said Roberts.
"All of these factors make it difficult to justify prices anywhere near where we are now. One has to look at the factors driving the price and determine how realistic those factors are," said Roberts. "I would argue that the current situation is more indicative of cash prices at $5. Cash prices at $5.40 cannot be justified by current U.S. supply/demand fundamentals."