Aggressive farmer selling as harvest progresses means elevators are absorbing heavier ownership of corn, soybeans and wheat, according to a report by CoBank lead economist Tanner Ehmke. Growers should prepare for potential trickle-down effects on cash prices and basis levels.
With elevators holding larger inventories financed at higher interest rates and trading at higher prices, the cost of carrying grain is up significantly, Ehmke said. At the same time, limited carry in the futures market in soybeans and wheat means merchandisers have little buffer to cover storage and borrowing expenses.
On top of that, rising freight rates and diesel surcharges ultimately affect local cash bids.
“A railroad surcharge of 50 cents per railcar-mile over a 1,000-mile shipment translates to approximately 14 cents per bushel,” Ehmke wrote. “If end users are unwilling to absorb the additional transportation cost, elevators must recover it through weaker local bids, effectively widening basis.”
Ehmke said fuel costs might not be fully reflected in the market and may become more apparent after harvest when grain movement increases and transportation demand intensifies. “If fuel costs remain elevated, elevators may face a choice between accepting lower margins, widening basis levels or delaying shipments,” he wrote.