Livestock producers were hit with a perfect storm of logistical concerns in the past month.
Grain producers could face their own logistical issues this fall, and analysts are starting to tell their customers that they need to be thinking now about how and where they plan to market their grain come harvest time.
“There are a lot of moving pieces right now,” said Dave Holm, head of the Iowa Institute for Cooperatives.
“This is becoming more and more a topic in the market,” added Karl Setzer, a market analyst with AgriVisor.
One of those moving pieces has nothing to do with the coronavirus. It is the simple fact that commodity prices are low. There is little incentive for farmers to sell at the moment, and as a result, less grain has been leaving farms and moving through the system. By some estimates, grain movement is 20% lower than normal, Holm said.
Another moving piece is the possible size of the newly planted crop. In some areas, such as Iowa, it was a model planting season, leading to the expectation that 2020 could be a bumper crop. That hasn’t been the case everywhere. Illinois, for example, has seen wet this spring.
Then there is the ethanol industry. Dramatically lower oil prices have hit the ethanol market hard and some plants are closed or running at less than full capacity. Approximately 40% of the corn grown in the Midwest goes through an ethanol plant, Holm said.
If some of those plants aren’t running now, that hurts demand. But if some of them aren’t open during harvest, that limits the places where farmers can haul grain, he said.
“There are so many unknowns,” Holm said. “All of the lessons we learned the last 20 years don’t apply.”
There are even questions surrounding the livestock industry, thanks to logistical issues regarding the supply chain.
Some markets for corn have been lost, says Michael Moellenbeck, vice president of the Grain Business Unit at River Valley Cooperative in Stanwood, Iowa.
“Currently the market sees poor demand and potentially large supplies,” he said.
Typically, Holm said, the crunch time is about 30 days during harvest when farmers don’t want to spend time hauling grain long distances and when local markets can fill up. That’s when farmers may be looking less at the best price than at who is willing to take delivery of grain in a timely fashion. This year that may become a much bigger part of the puzzle.
Setzer agrees, saying that with planting complete, farmers need to look at their marketing and storage and delivery decisions now.
For some farmers, that has meant selling some grain for fall delivery just to guarantee a place to go. For others it may be trying to put up more storage or preparing to store grain temporarily. Being proactive about emptying on-farm storage of old-crop grain will be important.
And Setzer said it is possible farmers will see a weak basis when trying to market grain this fall because there are fewer local options.
It is possible the virus situation will all be in the rear-view mirror and the ethanol industry will be chugging along at full speed. But right now, Setzer said, that appears to be more hopeful thinking than a predictable strategy. It is possible, he said, that finding a home for grain at crunch time may be a higher priority than finding a good price.