The Coming Grain Pain: A Strong Crop Could Create Logistical Challenges This Fall
July 8, 2020 There’s really no such thing as a typical season when it comes to grain marketing and logistics. But the additional stress and strain the COVID-19 pandemic, which has left an indelible mark on agriculture in 2020, will create some interesting challenges for grain logistics this fall.
What was hoped would be a return to relative normalcy for a market wracked by record moisture last year has been anything but garden variety. Set up by international oil policy late last year that sent gas prices into a tailspin in the first quarter of 2020, the COVID-fueled demand drop placed pressure on ethanol production. As of press time, new oil output agreements and slowly improving gasoline demand was easing that pressure, but the industry is far from full recovery.
Then the highly publicized struggles of meat processors to keep plants open in the heat of the pandemic put further pressure on stakeholders up and down the channel. “COVID brought on unprecedented disruption to the agriculture industry, and created a massive amount of uncertainty,” says Kevin Clausen, who spent 17 years working in grain origination and trading before joining Bushel in January as Senior Business Development Executive.
Ethanol demand dropped by half, and coupled with uncertain international demand, triggered lower cash prices for grain. And, Clausen points out, “that demand for ethanol is gone for this year — it can’t replaced.”
Tale of Two ‘Belts
How will this bizarre season play out this fall for grain? In part, that will depend on how the crop plays out, which at press time last month was looking positive in most regions of the Corn Belt. A big crop won’t do anything to move prices up into “cost of production” levels, heaping more financial pressure on burdened producers.
But there are key regional differences. Karl Hensley, an agribusiness consultant who retired last year from Nebraska-based Central Valley Ag, says storage capacity is a serious concern. “I travelled through Texas, Oklahoma, Kansas, and Nebraska, and there are some common themes between retailers and farmers in these states,” he explains. “They all have grain storage facilities that are full.”
As July and August approach, both retailers and farmers will be looking for homes to take grain. “With the demise of ethanol production, lower livestock numbers, and low exports, we are in for a logistical nightmare,” Hensley warns. “Labor is the No. 1 challenge. But today, the farmer is not a seller, and that is complicating things.”
In the Eastern Corn Belt, last year’s devastated crop left plenty of room for what 2020 will bring, says Ed Nienaber, Vice President of Grain for Heritage Cooperative, Delaware, OH. “When we started the season we anticipated that we would be in a deficit with the crop in 2020, and that we might need to import corn into Ohio to meet demand within the state,” says Nienaber. The pandemic as it currently stands has evened that deficit out somewhat, but storage appears that it will be plentiful this fall.
“Toledo has a 90-million-bushel capacity, its lowest level in years,” he adds. “Of course, a second wave of COVID-19 that disrupts demand and supply could change all that, and it has us all concerned.”
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