(As seen on WZZM TV 13) Michigan is facing the possibility of a record harvest of corn and soybeans this fall, but those farmers are also facing the challenge of low prices, and rail transport shortages that can be traced directly to the oil and gas boom in the Western states.
David Geers, president of Michigan Agricultural Commodities in Lansing, shared the news with 250 of the state’s agriculture leaders at the Fall Outlook Conference of the Michigan Agri-Business Association.
“We’ve seen corn prices drop below $3 a bushel,” he told the Business Journal. “A little over a year and a half ago it was over $7.”
Soybeans are now selling for about $8.50 a bushel. “Last year at this time, they were closer to $13,” said Geers.
MAC, a business started in 1976, is the largest handler of grains within Michigan today, operating eight large grain elevators in the state that can store a total of about 42 million bushels of corn, wheat and soybeans. Those commodities are stored for the farmers and dried in the elevators until they can be shipped out to processors, mainly by rail.
“The entire U.S. is expecting record (corn) production this year,” said Geers, citing USDA reports. It is predicted to be 14.5 billion bushels — “a big number, a record,” he said, and it will mean a surplus of 2 billion bushels that will be carried over into next year.
The USDA is projecting a Michigan corn crop of 363 million bushels, after a record 349 million last year. The soybean harvest in Michigan this fall is projected to be 103 million bushels, with the prior record being 91.5 million in 2006.
“That’s a struggle our customers are dealing with right now: good yields but really cheap prices, and the increased yields are not making up for the cheaper prices,” said Geers.
“The market has dropped significantly as a result of these big yields,” he added, referring to the agricultural commodities futures trading at the Chicago Board of Trade.
Due to weather conditions, there is above-average moisture content in the corn this fall, which will tax the drying capacity of what the industry calls “country elevators” in Michigan, according to Geers.
Logistics — transportation and storage – of corn, wheat and soybeans is a major issue among the producers because when those commodities are harvested, the processors simply cannot absorb that much volume so quickly. As a result, the gradual shipment from the elevators takes place over much of the following 12 months.
On-farm storage facilities in Michigan can accommodate about 290 million bushels, and off-farm country elevators throughout the state have total space for about 200 million bushels.
In Michigan this fall, there is a carryover inventory of 75 million bushels of corn and soybeans from last year, which, when added to the expected bumper crop, means “we will have 541 million (bushels) looking to fit into 490 million (bushels) of space,” said Geers.
Corn can be stored temporarily in large piles on a cement or asphalt surface and covered with tarps, which is one solution. That temporary storage is only intended to be used until space is freed up in the elevators.
In Michigan, the options facing farmers are to store their corn, wheat and soybeans in their own facilities or in commercial elevators like MAC, or ship it to elevators out of state, but the oil boom in the Dakotas and other states in that region is now taking up the rail capacity Michigan farmers need.
Rail transportation companies “appear almost overwhelmed by the additional demand by energy companies, and the concern is that grain will suffer as a result,” said Geers.
ProExporter Network expects Michigan to export 134 million bushels of corn and 85 million bushels of soybeans in the 2014-15 marketing year.
According to the federal Energy Information Agency, U.S. crude oil production averaged more than 7.4 million barrels per day in 2013, up from 5 million in 2008. U.S. crude production was averaging more than 8.2 million in March, and EIA expects it to exceed 8.4 million in 2014. The number of oil and gas drilling rigs in use increased by more than 18 percent from January 2009 to April of this year.
Geers is expressing concerns by the grain industry in Michigan, but he is not saying the sky is falling.
“The most serious problem with (grain) storage space in Michigan was in 2005 and 2006, and we made it through that without losses of what I would consider of any significance. In those years, the harvest just slowed down — it spread itself out, which allowed people to make space by shipping grain out. I would say the harvest took longer but, ultimately, it got under cover and I’m pretty confident this year’s crop will be the same. There are always spot problems.”
“We feel very good about the storage space we have available at MAC facilities. We’re expecting to have room to handle all of our customers’ production and any additional that is out there needing a home,” he said.
Michigan Agricultural Commodities is a privately held corporation that buys, sells and stores agricultural commodities throughout the U.S. and Canada. Since 1985, MAC has purchased 13 elevators in Michigan and Ontario. Today, MAC is Michigan's largest grain handler with 110 employees.
“We’re a big fish in a small pond,” said Geers, adding that the really big agricultural commodities buyers in North America are corporations such as Archer Daniels Midland and Cargill.
Zeeland Farm Services, a major buyer of soybeans in Michigan, is both a competitor and a customer of MAC, according to Geers.
The MAC website states its broad geographical spread allows it to maintain a hedge against agriculture’s nemesis: the weather.
MAC serves 12,000 farmers in Michigan in their grain marketing and handling, shipping grain an average of 900 miles by rail. Much of the corn MAC ships out of state goes to southeast United States hog and poultry producers for feed. Those are major corporations such as Perdue, Tyson, Pilgrim’s Pride, Murphy Brown and Smithfield Foods. MAC also ships soybeans to ADM, Bunge and Cargill in the United States.
Along with grains sold for animal feed, MAC also does business in ethanol, providing nearly 38 million bushels of corn a year to the ethanol industry.
The Michigan Agri-Business Association has held a Fall Outlook Conference for five years now, with the two-day meeting providing updates from state and national leaders on current challenges in agriculture, advancements in the agronomy sector, the growth of renewable fuels, infrastructure access and more.
“As we do business in a changing landscape — from rail and logistics to shifting weather and production patterns, to expanded consumer interest in sustainability — this meeting provides an opportunity to bring industry leaders together and ensure we’re well positioned to be successful going forward,” said Jim Byrum, president of the MABA.
Other speakers at the conference included Dan Vradenburg of Wilber-Ellis Co.; Leonard Gianessi of CropLife Foundation; Ken Nobis of Michigan Milk Producers; Joe Cramer of the Michigan Bean Commission; Mike Wenkel of the Potato Growers of Michigan; Shasta Duffey of WATCO Cos. (which owns 31 short-line railroads); and State Sen. Mike Green.