U.S. Grain Storage and Challenges to Traditional Grain Merchandising

The Farm Assets Conference in November was built around the idea of a changing supply chain for grain with end users like Anheuser-Busch & McDonald's reaching out directly to the farmer. Rabobank's Grain and Oilseeds team lays out some of the how in a report released this month. Take 15 minutes to listen to Stephen Nicholson Rabobank Senior Analyst - Grains & Oilseeds explain how he sees on-farm storage being tapped by end-users. It takes a few seconds for the clip to start playing.

Report summary via RaboResearch

The challenging profit environment for merchandising grain goes beyond the growth in U.S. on-farm storage and producer selling patterns. Both on-farm and off-farm storage has increased since the late 1990s, with off-farm or commercial storage growing faster, while silo bags on-farm provide additional room.

Major U.S. grain companies have been increasing both their control of U.S. storage capacity and the number of facilities, but still face challenges in their origination profitability. As commodity prices have fallen, so has the growth in constructed on-farm storage. Producer commodity sales patterns have not changed materially over the past twenty years, and at the same time crop production has grown faster than on-farm storage capacity, meaning that a large percentage of the crop must be stored off-farm or come to market.

Producers are changing the supply chain by controlling production, logistics, and storage –cutting the elevator out of the middle and going directly to the end-user or major origination hubs on rivers or at processing plants. Increased export competition from low-cost global producers such as Brazil and the Black Sea region pressures U.S. export commodity prices lower, which in turn pushes grain exporters' margins or elevations lower in order to compete. A potential change in the seasonality of U.S. soybean exports due to a reduction in Chinese export business will require soybeans to be stored throughout the marketing year

“The marketplace is changing how and where grain moves to market and therefore changing the grain companies’ business models,” according to Stephen Nicholson, Senior Analyst Grains & Oilseeds. “As their business models change, assets deployed will change, ownership of assets will change, and ultimately the prices paid and received will change. The changes are just only beginning.”