The current round of low commodity prices isn’t doing farmers any favors. But a new research report by CoBank suggests others further down the commodity chain could also be feeling the squeeze this year.
U.S. grain merchandisers in particular are feeling the strain caused by low price volatility, ample inventories, slow farmer selling and an “anemic export program,” according to Tanner Ehmke, senior economist with CoBank’s Kowledge Exchange Division.
“With no relief immediately in sight, grain merchandisers will undergo further belt-tightening in the year ahead,” he says. “Most grain elevators have solid balance sheets thanks to multiple years of strong revenues. Nonetheless, pressure for consolidation will likely intensify in an environment of slimmer profit margins.”
Co-op managers are already worried about the availability of storage space this fall, Ehmke says. That’s because inventories are typically 10% farmer-owned – this year, they’re 30% at many co-ops.
“Barring any significant weather-related crop losses this year, grain handlers could be tasked with managing huge farmer-owned inventories into the new-crop year and creating, at least temporarily, additional storage,” he says. “Whether or not farmers will be willing to sell grain, remains the co-ops’ wildcard.”
If La Niña arrives in full force later this summer, it could ding farmer yields, but it can hurt grain companies in another way, Ehmke says. That’s because the drier-than-average weather could decrease grain drying revenue, which can account for as much as 10% of a co-op’s profits.
In this YouTube video, Ehmke further summarizes the report, “Grain Elevators Braced for a Challenging 2016.”