The Mississippi River and farming

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Mississippi River water levels have reached record lows in the first half of October. At Memphis, for example, the river stage, or height of the river’s surface relative to the zero-stage level of 189.9 feet, fell to a record low of minus 11.5 feet on Oct. 11. This is lower than last year’s record low of minus 10.81 feet at Memphis. As described in previous articles including Severe Weather and Low Mississippi River Levels Bring Uncertainty to Harvest and Low Mississippi River Levels Drive up Grain Transportation Costs, these low river levels have reduced and delayed barge traffic and increased transportation costs for farmers during peak harvest season.

From ocean port congestion and labor strikes to low river levels, railway service shortfalls and a nexus of state and federal freight regulation, farmers and ranchers are well acquainted with transportation disruptions. One effective albeit costly way to buffer against these disruptions is investment in on-farm and off-farm storage.

USDA’s latest Grain Transportation Report from the Agricultural Marketing Service highlighted National Agricultural Statistics Service data on grain storage capacity for both on-farm (including bins, cribs and sheds used to store grains and oilseeds on farms) and off-farm facilities (including elevators, warehouses, terminals, mills and crushers). As of Dec. 1, 2022, the U.S. had 25.4 billion bushels worth of total grain storage capacity: 11.8 billion (47 percent) of off-farm storage and 13.6 billion (53 percent) of on-farm storage.

As of Sept. 1, 2023, farmers and commercial grain facilities held 3.69 billion bushels of grain in storage, a marginal 16-million-bushel, or 0.4 percent, decline from last year but down 25 percent from the prior five-year average. On-farm grain stocks made up 39 percent of total grain stocks. Combining current grain stocks with expected fall harvested crops puts total grain supply at approximately 23.12 billion bushels. Comparing this to the total storage capacity of 25.4 billion bushels shows the U.S. has about 2.18 billion bushels of surplus grain storage space.

Not all heartland states are created equal in terms of grain storage availability. While states like North Dakota and Minnesota have a large surplus of available space, states like Indiana and Ohio have a significant storage deficit. Worsening conditions in this region mean product has few places left to go since it cannot be easily moved to downstream buyers. Shifting to costlier rail or trucking services often becomes a last resort.

Analyzing on-farm and off-farm storage trends can reveal which states have seen the most growth or loss of storage capacity. On-farm storage allows farmers the most flexibility in terms of weathering external market disruptions. Farmers are only reliant on themselves and their own equipment and capacity restrictions in getting grain stored under this category. Once grain leaves the farm, that storage is no longer accessible for that crop, shrinking the practical storage capacity of the broader market. The more on-farm storage available to farmers the more control farmers have on the marketing of their crop which influences final received prices. On-farm storage has made up an average of 54 percent of total storage capacity for the past five years.

Mirroring the distribution of total storage capacity, Iowa leads as the state with the highest on-farm storage capacity with space for 2.05 billion bushels, followed by Minnesota (1.55 billion) and Illinois (1.5 billion). Compared to the prior five-year average, most states have seen little change in available on-farm storage for a national increase of 0.6 percent or 76 million bushels.

Off-farm storage has made up an average of 46 percent of grain storage capacity for the last five years. Farmers reliant on storage under this category may still be reliant on external transportation services to get grain stored opening producers to more cost risk. Illinois leads as the state with the highest off-farm storage capacity with 1.65 billion bushels worth of grain storage capacity. Illinois is followed by Iowa (1.52 billion) and Kansas (1.2 billion). Compared to the prior five-year average, national off-farm storage is up two percent or 241 million bushels

Storing grain for longer periods of time raises other farm financial considerations. The cost of holding grain has not been spared from high interest rates or increasing costs for labor, energy and other operating expenses. Interest expenses can make up a quarter to a third of a grain elevator’s total cost of storing grain, shrinking the bids farmers may receive for their crops and increasing the supply of grain on the market. Farmers also often have large sums of money tied up in grain inventory which can be paid back with the proceeds from the sale of grain. If that grain continues to be stored, those farmers are on the hook for more interest payments and continue to have much of their capital tied up.

Basis, the difference between the current local cash price and a relevant futures contract price for a certain time period, is impacted by both storage costs and transportation availability. A negative basis value represents a cash price under a futures price while a positive value represents a cash price over the futures price. A basis that becomes more positive is often described as “narrowing,” while a basis that becomes more negative is considered to be “widening.” When basis is more positive or narrower than usual the market is sending a signal to make more cash sales within a region, while a widening basis would signal that the market is discouraging cash sales and it may be a better bet to store crops. These dynamics are important to understanding local demand. Higher transportation costs due to disruptions can widen basis, discouraging movement of grain to impacted regions. Higher storage costs have a similar but opposite effect, narrowing basis when cash prices increase in response.

For the 40th week of 2023, downbound grain movements of corn, soybeans and wheat at St. Louis are far below previous years. Compared to the same week last October, total commodity movements were down 55 percent with corn down 69 percent, soybeans down 46 percent, and wheat down to zero.

As harvest moves forward we will keep an eye on Mississippi River levels as bottlenecks in the transportation system can prolong harvest and have negative effects on grain prices.

“Don't judge each day by the harvest you reap but by the seeds that you plant.” -Robert Louis Stevenson

Ron Kern is the manager of the Ogle County Farm Bureau.