The cost of grain storage, also known as the cost of carry, has risen significantly due to increased interest rates, high crop prices, and rising labor, insurance, transportation and energy costs. This surge is impacting grain elevators, potentially forcing them to lower their bids on grain to cope with the unfavorable economics of commodity holding.
A recent report from CoBank’s Knowledge Exchange indicates the interest-related cost of carry for the 2023-24 marketing year is expected to rise 21% for corn, 42% for soybeans and 50% for all-wheat, year-over-year – all predicted to be record highs. These projections are based on an anticipated average annual interest rate of 7.75% for grain merchants in the 2023-2024 crop year, alongside USDA’s average price forecasts.
Grain elevators bear substantial costs for holding corn, wheat and soybean inventories. Interest expenses can make up between a quarter to a third or more of a grain elevator’s total storage cost. The recent increase in interest rates adds more pressure, particularly as they have to borrow higher-priced funds for commodities that maintain historically high prices.
In addition, the persistent inverse in futures markets complicates matters for grain elevators. When futures prices are lower than spot prices, farmers are incentivized to sell commodities instead of storing them for future sale. This is a significant issue for cooperative grain elevators and farmers, both contending with rising costs.
Cooperative elevators, obliged to buy and market their members’ grain despite the economic disincentive, will face more strain on their operations. To cope, they may need to scrutinize operating costs closely and impose stricter cost discipline. Reducing their bids and broadening the basis to cover storage costs might be necessary, requiring clear communication with affected farmer members.
However, there is some positive news, the analysis notes: The Federal Reserve is expected to maintain the current interest rates for the foreseeable future, and USDA forecasts lower prices for corn, soybean and all-wheat for 2023-24 crop year, which might alleviate some pressure on carrying costs.
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