Grains Piled on Runways, Parking Lots, Fields Amid Global Glut04/12/2017
Chicago Iowa farmer Karl Fox is drowning in corn.
Reluctant to sell his harvest at today’s rock-bottom prices, he has stuffed storage bins at his property full and left more corn piled on the ground, covered with a tarp.
He would rather risk potential crop damage from the elements than pay the exorbitant cost of storage elsewhere.
“That’s how poor people do it,” said Fox, who has been farming for 28 years. “You do what you have to do.”
Farmers face similar problems across the globe. World stockpiles of corn and wheat are at record highs. From Iowa to China, years of bumper crops and low prices have overwhelmed storage capacity for basic foodstuffs.
Global stocks of corn, wheat, rice and soybeans combined will hit a record 671.1 million tonnes going into the next harvest – the third straight year of historically high surplus, according to the U.S. Department of Agriculture (USDA). That’s enough to cover demand from China for about a year.
In the United States, farmers facing a fourth straight year of declining incomes and rising debts are hanging on to grain in the hope of higher prices later. They may be waiting a long time: Market fundamentals appear to be weakening as the world’s top grain producers ponder what to do with so much food.
The persistent glut is a striking contrast from the panic a decade ago, when severe droughts in Russia and the United States sent prices soaring. The shrinking supply forced big importers such as China to enact policies to encourage more domestic production and increase the volume of storage to improve food security.
China abandoned that policy last year and is now selling off hundreds of millions of tonnes of old stocks.
Russia, too, is looking at exporting from state-held stockpiles, with storage stuffed after a record harvest in 2016.
A surge of Chinese and Russian exports would put even more downward pressure on prices in an oversupplied global market.
That means U.S. farmers will likely be producing more grain for less money. The USDA forecasts net farm income will fall 8.7 percent this year to $62.3 billion – the lowest level since 2009.
CATERPILLARS, RODENTS AND DONKEYS
In farms across Iowa, corn bulges in plastic tubes that snake across the fields.
The grain-stuffed silo bags are taller than a man, often longer than a soccer field and look like monstrous white caterpillars.
On the other side of the globe in Australia, demand for the storage bags has exploded after farmers produced record crops of wheat and barley.
They are laying across fields in Argentina, too. There, wheat production spiked 41.6 percent this year over the 2015/16 season, according to the most recent USDA data.
There are risks to using the bags, however, as wild animals ranging from rodents to armadillos and even donkeys can be tempted to break in for the grain, said Mariano Bosch, the head of Adecoagro SA (AGRO.K), which farms more than 225,000 hectares of row crops in Argentina, Brazil and Uruguay.
When the company expanded its grain plantings in northern Argentina, he said, they started building electrified fences around their silo bags to keep out cougars and pumas.
“They won’t eat the grain. They’re just curious,” said Bosch, who added that about 40 percent of the company’s grain this year is stored in silo bags.
In neighboring Brazil, the world’s largest soybean shipper and the second-largest exporter of corn, towering grain silos have sprung up all across the country.
GRAINS ON THE RUNWAY
Storing grain gives farmers more control over when and how they sell, to avoid low harvest-time prices and to best take advantage of spikes in futures or currency swings.
But with storage running short – and a mountain of grain to move ahead of summer or early autumn harvests – that control is slipping away.
Farmers with mounting bills, tight cash-flow and nowhere to store crops may have to sell them – even if it means taking a loss.
In Goodland, Kansas, where the next wheat harvest begins in late June, farmers holding grain in silos are facing cash wheat prices of about $3.15 a bushel and cash corn prices of $2.90 a bushel – both well below production costs of at least $4 a bushel.
Permanent storage in the United States can handle about 24.3 billion bushels – well short of the 25.9 billion bushels of wheat, soybeans and feed grains the USDA said was piled up by the end of last autumn’s harvest.
The overflow in the United States has prompted a rush for temporary storage. The USDA has approved permits for more than 1.2 billion bushels of temporary and emergency grain storage – such as tarp-covered piles and open-air mounds. That’s a record amount, according to the USDA.
In Kansas, some grain owners are renting airport tarmacs from decommissioned military bases, empty farm fields and parking lots to stash their corn as the situation becomes acute, according to farmers and local, state and federal officials.
Meanwhile, there are no signs of a slowdown in grain production.
The USDA already expects 2016/17 global harvests to be the highest since its records started in 1960/61 at 340.79 million tonnes of soybeans, 1.049 billion tonnes of corn and 751.07 million tonnes of wheat.
“Nobody is going to cut back,” said Fox, the Iowa farmer.
With spring planting coming up, he is scouting for more storage space for this year’s harvest.
“I have a note at the bank to pay off,” he said. “I can’t do less.”
Source: P.J. Huffstutter and Karl Plume, Reuters