Grain Elevator Margins Could Tighten in New Year

(DENVER, CO) Average grain elevator margins are expected to be relatively normal this year for most of the Midwest. However, according to a new report from CoBank’s Knowledge Exchange Division, elevators should be cautious about the outlook, as several variables are currently in play that could affect elevator margins. Corn and wheat margins look solid on good carry and expected basis improvement, although corn ownership may be difficult for some elevators to obtain. Soybean margins for the year ahead face some uncertainties. Elevators are confident they will make a margin, but the question is when. Trade, logistics, and export competitor production will be major factors impacting margins going forward. “Overall, soybean basis appreciation will face resistance over the next year,” said Will Secor, grain and farm supply economist with CoBank. “Ample supplies and weak demand will continue to hobble the market. With farmers looking to store soybeans and elevators wanting to own bushels at harvest, there is a risk that elevators will narrow the harvest basis to gain ownership on the farmers’ remaining unsold bushels”. Secor said this basis-ownership tightrope walk is not new for elevators, but the risk is enhanced this year for soybeans. Corn basis remains relatively strong considering the large crop, thanks to strong domestic demand. Ethanol use is expected to increase year-over-year, and feed demand will remain robust as cattle, hog, and poultry numbers continue to increase. Amid this strong demand, elevators will likely see strong basis appreciation this year. Wheat margins will be strong as elevators benefit from healthy carry on old grain blended with this year’s quality crop. Futures market carry will incentivize storage of these large crops, while basis will likely strengthen for corn and wheat. It is unclear how much basis appreciation soybeans will see amid weak demand and a record crop.