Tariffs have DeKalb County farmers storing crops, waiting
On July 6, in response to the U.S. imposing a 25 percent tariff on Chinese steel, aluminum and other products, China imposed 25 percent tariffs on a list of U.S. products, including corn and soybeans.
The tariff has caused a reduction in Chinese imports of those crops. The loss of access to that important market has led DeKalb farmer Gene Reid and other DeKalb County farmers to opt to play a waiting game: wait for a better market price of grain before selling it.
But waiting requires putting the grain into storage, either in bins or silos on their own farm or in rented space at a local grain elevator.
“Usually I store only a portion of my grain, but because of the market, I’m storing 80 percent of my corn and 100 percent of my soybeans this year,” Reid said. “Sometimes I sell at harvest, but I’m storing more bushels this year. I think all farmers are sitting and waiting with their grain. We just have to wait and watch the markets and the basis.”
The basis is the difference between the Chicago Board of Trade’s price and the price offered by the local grain elevator operator. A wide or widening basis is often a signal that the grain market doesn’t want the product, in other words, there is too much supply and not enough demand.
“With the tariffs against China, they’ve quit importing our beans, so the basis is widened,” Reid said. “The basis is tremendously wide, wider than it’s almost been at around $2 a bushel for soybeans. Farmers have to wait for that basis to narrow and hopefully match the Board of Trade. Hopefully the tariff issue will get solved soon.”
Farmer Terrie Tuntland of Waterman has decided to store all of his corn and soybeans this year at the DeLong Co., Inc. elevator in Waterman.
“I had quite a bit of grain sold before harvest and before the tariffs went into place,” Tuntland said. “My first choice is storing the grain because it takes a lot of the responsibility off of me as a farmer. I don’t have to worry about moisture, insects or damage. Once I take the grain across the scale, the elevator takes care of it for me.”
Kent Hamm, general manager at Waterman’s DeLong Co., Inc. elevator, described the function of a grain elevator as “absorbing local crop during harvest and be a reliable supplier of grain throughout the year.”
The Waterman grain elevator has a capacity of 3.5 million bushels, or 100,000 tons, of grain. At the end of the 2018 harvest, it will have a soybean inventory worth about $5.6 million and a corn inventory worth about $8 million.
“We offer three services for grain: offering a local market, storing and drying,” Hamm said. “About 40 percent of every U.S. corn bushel grown is used for ethanol in gasoline fuel, 16 percent is exported and the rest is sold for animal feed.”
Dave Kerber, grain merchandiser with CHS Elburn, said a grain elevator’s role is to “provide a market for grain and a convenient location for storage to make harvest as easy as possible for local producers.” CHS Elburn’s grain elevator in Malta has capacity for approximately a million bushels of grain.
Every grain elevator has a bid sheet, which lists its posted price for grain that day.
“It’s pure economics: low supply, high price; high supply, low price,” Hamm said. “Generally, harvest is the lowest price because there’s such a high supply. Generally, late summer is the highest price. To sell the grain later, it needs to be stored.”
To store grain at an elevator, farmers enter into a contract agreement. There is a storage charge from harvest through Jan. 1, then rates are prorated by day and charged per bushel monthly.
The grain, once delivered to the elevator, mixes with other farmers’ grain and becomes a commodity.
“Every time a load of grain comes through, the grain is sampled and graded for moisture, test weight, foreign material and damage,” Kerber said. “If corn is wet, it’s dried to approximately 15 percent and we look for soybeans to be about 13 percent moisture.”
Once the grain is stored, farmers monitor the bid sheet daily. Once a farmer deems the market price acceptable, they sell the grain to the elevator. The elevator negotiates the price with the buyer, and the grain is removed from the elevator and delivered.
Farmer Steve Bemis of DeKalb stores and dries his grain in bins on his farm. His bins have a capacity of 440,000 bushels.
“I like having our own storage, it gives us more freedom,” Bemis said. “We don’t have to rely or depend on a grain elevator. We can work our own hours and don’t have to pay a rental price. Depending on the basis, I usually sell my grain in December, but it could be March or May or July.”
With good grain yields this year, Hamm and Kerber said their elevators will be at or near capacity by the end of the harvest. For added capacity, the DeLong Co. built and completed a new bin this year that will hold 840,000 bushels.
“We generally try to be empty before harvest and then start filling up by the end of November,” Hamm said. “With better technology, GMO seeds and better farming practices, yields per acre offset the loss of farm acres. Even though we have bigger yields, we have new markets. The ethanol market didn’t exist more than 10 years ago, and now it’s where the majority of our corn goes.”
Tuntland said that as a farmer, he’s happy to have so many options for what to do with grain, whether it’s keeping it in storage, making a forward contract and selling it before harvest or selling it at harvest.
“There are many different options for farmers, whether it’s selling the grain or storing it on their farm or at an elevator,” Tuntland said. “I think we’re all thinking about money and about profit. But it all depends on the farmer, what they decide to do.”