There'll Be Room to Spare in Storage for '02 Crop
Indiana's corn "mountains" are disappearing, at least for
No such golden peaks are expected when farmers harvest the 2002 crop in the weeks ahead. For the first time in six years, storage capacity will be greater than storage needs, said Chris Hurt, Purdue University agricultural economist.
Storage capacity statewide is about 1 billion bushels, Hurt said. Combined carryover stocks from the 2001 crop and the projected 2002 crop production will be less than that, he said.
"Last year the grain industry had to handle about 1.3 billion bushels of grain in storage stocks, as well as harvest," Hurt said. "This year that number is going to be down around a billion bushels in the state. So there are more than 300 million fewer bushels to be handled.
"That is a very large reduction and, in fact, is the third greatest decrease in the amount to be handled in the history of Indiana. We have to go back to the 1983 drought and the 1988 drought to have seen years when we had this big a reduction in the amount of grain to handle."
Weather-related late planting this past spring followed by near drought conditions this summer have hurt corn production potential in Indiana and many Midwest states. The late planting reduced corn acreage and the summerlong dry spell cut deep into crop yields.
Corn production is trending 26 percent below 2001 levels, Hurt said.
Soybean and winter wheat production also is down this year. Indiana farmers are likely to produce a soybean crop 15 percent smaller than 2001. The state's 2002 wheat crop, harvested this summer, was down almost a third from 2001.
Because corn yields are usually much larger than those of soybeans and wheat, most grain stored in on-farm and off-farm facilities is corn, Hurt said. This year, new-crop corn represents 65 percent of stored grains, followed by new-crop soybeans (23 percent) and carryover stocks (10 percent).
Markets already are responding to the dismal fall harvest projections. Indiana corn prices for the 2002 crop are up 40 cents to 80 cents a bushel from this past winter, at $2.50-$2.70 a bushel. New-crop soybean prices are running between $5.30 a bushel and $5.60 a bushel, as much as $1.60 a bushel more.
The probable excess storage capacity and higher grain prices are positive signs for farmers, Hurt said.
With yield expectations dropping, there could be less traffic around grain elevators and processors, he said. Grain handlers might even need to cut handling fees or offer other incentives to win farmers' business.
"Because there's plenty of storage and prices are high, farmers will probably want to store grain, thinking prices will move even higher on into the winter," Hurt said. "Actually, what we often see in years like these is that you get strong prices at harvest. At this point I think it is possible we could have very good harvesttime prices. This may suggest to farmers that they should be selling at harvest. If they want to speculate for higher prices, they should sell at harvest and then come back by buying either call options or futures."
Farmers also should benefit from stronger grain price basis levels, Hurt said. Basis levels for corn will be 5 cents to 10 cents above normal for the remainder of the year, he said.
Eastern Corn Belt grain handlers could pick up some business from farmers in states with average or above average crop production, Hurt said. For example, many parts of Iowa and Minnesota were unaffected by the wetter-than-normal spring and hot, dry summer.
"Because Indiana and Ohio are both so short on crop production this year, it's possible that we could see corn shipped from the Western Corn Belt into the Eastern Corn Belt," Hurt said. "That's not unusual in years where we have a substantial setback here in the East."
Still, "grain industry profits will be diminished, because they will have fewer bushels to store and merchandise," he said.