Grain Storage Capacity Can Buffer Impact of Transportation Disruptions

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. Having sufficient storage capacity close to agriculturally productive regions means farmers can have a place to offload harvest if downstream transportation options are too expensive or unavailable. If storage is unavailable, farmers will be forced to absorb elevated transportation costs, face steep price cuts to get product moved or risk crop quality losses.

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%) of off-farm storage and 13.6 billion (53%) of on-farm storage. The bulk of grain storage is in heavy grain-producing heartland states. Iowa leads with 3.57 billion bushels worth of storage capacity followed by Illinois (3.15 billion) and Minnesota (2.37 billion).

The concept of a grain storage surplus, however, is not uniform across all states. Some states have a storage deficit, making them more susceptible to the impacts of transportation disruptions. Notably, 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 (332 million bushels and 279 million bushels, respectively), states like Indiana and Ohio have a significant storage deficit (-117 million bushels and -73 million bushels, respectively). Several other states reliant on the Mississippi River for grain transport face low grain storage availability, such as Missouri (-53 million bushels), Kentucky (-31 million bushels), Tennessee (-43 million bushels), Mississippi (-48 million bushels) and Louisiana (-34 million bushels). 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.

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% or 76 million bushels. Tennessee and Kentucky have far outpaced this national percent increase with an 11% and 14% increase, respectively. Both states faced severe, storage-destroying storms in late 2021. The availability of several federal cost-share programs to fund the reconstruction of expanded facilities could be the cause for these larger-than-average increases. On the other end, Oregon and Washington had a significant decrease in on-farm storage (-11% and -8.6%, respectively). Reasons for these localized declines are difficult to isolate but may be linked to the declining number of farms in the region generally or ongoing political efforts to breach Columbia River dams that have made maintaining and investing in grain markets riskier. The less on-farm storage available, the more pressured farmers are to deliver grain immediately after harvest. 

Off-farm storage has made up an average of 46% 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 (e.g., a shuttle rail service, trucking company or waterway), 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 2% or 241 million bushels. Most grain-heavy states have seen an increase in off-farm storage from the prior five-year average. Illinois had the highest increase with 6.1% – followed by North Carolina (6%) and Kentucky (4.9%). The Southwest faced the most significant loss in off-farm storage with New Mexico down 10.8%, California down 9.6% and Arizona down 5.6%. Perhaps persistent drought conditions have foiled continued upkeep in larger-scale grain facilities, though other localized factors are likely at play.

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 (not being stored) on the market. Farmers also often have large sums of money tied up in grain inventory (based on capital they borrowed for the season’s expenses), 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.

EDITOR’S TAKE:

This is a very timely topic with barge traffic on the Mississippi slower than normal due to low water levels. In addition, low water levels continue to plague the Panama Canal after what’s reported as its driest October on record. Daily ship transits through the Panama Canal will be cut in half this winter. These are examples of why farmers need on-farm and off-farm storage. The article does a very good job of explaining the pros and cons of storage, especially if longer periods are needed to ship and market the grain. All in all, however, farmers are better off with some excess storage capacity in a year like we are currently facing in the transportation arena. The storage will help smooth out the marketing year and allow pricing grain over a longer period. This all helps sustain the income for farmers so they can purchase that new or used vehicle from your lot. So, make sure you put your inventory on AgTruckTrader.com today if you have not already done so. Also, if you have a mobile unit or two, offer to visit farmers/ranchers operations to help maintain their current trucks.