Michigan Ag Connection - High Interest Rates Drive Record Grain Storage Costs and Lower Cash Bids

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High Interest Rates Drive Record Grain Storage Costs and Lower Cash Bids
Michigan Ag Connection - 06/05/2023

Grain elevators are grappling with financial challenges as high interest rates contribute to soaring grain storage costs and lower cash bids. The combination of rising interest rates, elevated commodity prices, and increased expenses for labor, insurance, transportation, and energy is squeezing grain elevators, forcing them to adjust their local bids on grain.

According to a report by CoBank titled "Rising Cost of Carry Will Force Cooperative Grain Elevators to Lower Bids, Widen Basis," the cost of carry for the upcoming 2023-24 crop year is projected to reach unprecedented levels. Interest-related cost of carry is expected to increase by 21% for corn, 42% for soybeans, and 50% for all-wheat compared to the previous year, setting new records.

The financing of corn, wheat, and soybean inventories represents a significant portion of grain elevators' cost of carry. Interest expenses, which can make up a substantial portion of total storage costs, vary among grain merchandisers and crop years.

Tanner Ehmke, lead grains and oilseeds economist for CoBank, highlighted the timing challenges faced by grain elevators as they borrow funds at higher prices for commodities already at historically high price levels.

To mitigate the financial strain, grain elevators will need to carefully manage their operating costs and communicate effectively with farmer members who will be impacted by any adjustments to bids and basis widening. Despite these difficulties, there is some optimism as the Federal Reserve is expected to maintain current interest rates, and USDA forecasts a drop in corn, soybean, and all-wheat prices for the upcoming crop year, providing some relief to carrying costs.

Navigating the financial pressure caused by high interest rates requires strategic decision-making and collaboration within the grain industry to ensure the continued viability of grain elevators and support for farmers during these challenging times.

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