Wednesday, April 6, 2011

Farmers Betting on Corn Storage (and how not to sell a silo)

In the last commodity price run-up (late '70's) farmers, especially in the Midwest, bought HarveStore silos as fast as the company could make them. Dairy farmers would buy the things three and four at a time. The University of Central Oklahoma even maintains a tribute page:

Harvestore™  Blue Silo - unofficial tribute
This page is dedicated to Oklahomans who never saw a Blue Silo -
because they didn't live near any wealthy farmers who owned them.

For many years that burst of silo-buying enthusiasm marked the top of the milk market, similar in some ways to the Skyscraper Index, developed by Dresdner Kleinwort Wasserstein, marking the top in equity booms.

Right now dairy is in the tank and there's not a lot of call for silage but grain storage is booming and coincidentally over a large swath of the Great Plains, from North Dakota to Kansas, grain elevators are known as Prairie Skyscrapers.

Here's the storage story from the Financial Times:

Farmers look to earn their corn with new storage bins
Soaring corn prices have sparked a rush by US farmers to build storage bins across the Midwest, with many hoping to profit from an expected shortage by hanging on to grain supplies.

The rapid pace at which bins are being erected has made the glint of galvanised steel a more common sight in rural parts of the US, their growing presence a sign that farmers expect to fetch higher prices for their corn as the country’s stocks fall to critically low levels.

“Storage has had an incredible boom,” said Michael Swanson, agricultural economist at Wells Fargo. “Farmers have built more on-farm grain storage in the last three to four years than they’ve built in the previous 30.”

Government economists believe that US corn inventories will fall sharply before combine harvesters start rolling in the autumn, to 675m bushels by August. Corn futures prices have doubled in a year to surpass $7.70 per bushel, breaking records set in the commodity price spike of 2008....MORE
From the Tribute page:
...On a hot day, one of these salesman probably had a bad day selling blue silos prior to arriving at our farm because his patter wasn't as smooth as usual.

I was in the holding area with seven or eight fresh heifers that had all calved in the last 48 hrs and never been through the parlor. The heifers were going around in the holding area like motorcycles inside a barrel. Manure was flying and it was hot. We were getting them milked but it was real tough.

That's when the blue silo salesmen unexpectedly stepped up to the back gate of the holding area and started pointing out the disadvantages of bunker silos.

I said something like: "Hey!, We LIKE bunker silos!. Can't you see those three big bunker silos right over there and that row of old dump trucks!" 

The silo salesman lost his cool and shouted back: "It's dumb xxxx'x like you that make it so hard for me to sell blue silos."...