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posted: 12/18/2011 5:22 AM

Farmers filling silos after record earnings

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Bloomberg News

In a year of record agricultural earnings in the United States, Steve Ruh spent a chunk of his income to build what's become an increasingly common sight at farms across the Midwest -- grain storage bins.

The Illinois corn grower started with 250,000 bushels of storage capacity in 2009 and added 100,000 this year to avoid wasting precious harvest time in line at grain elevators. He can now hold crops in gluts, hoping to sell at higher prices when grain is scarcer, and is storing half the 400,000-bushel corn crop this season at his farm in Sugar Grove.

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"I like the control," said the 42-year-old, who works 3,000 acres of corn, soybeans, wheat and alfalfa. "This allows me to market 12 months out of the year instead of half that time."

Corn-belt farmers like Ruh have pushed up U.S. oilseed and grain storage capacity to the highest in two decades, enriching bin makers from GSI Holdings Corp. to Brock Grain Systems, which is controlled by Warren Buffett's Berkshire Hathaway Inc., while raising costs for Cargill Inc. and other grain traders.

"We are looking for 2012 to be a huge demand for storage," said Doug Niemeyer, a general manager at Brock, which is a unit of Berkshire's CTB Inc.

U.S. farmers, whose crop futures trade in Chicago and help set global grain costs, are gaining pricing power as the world shifts from grain surpluses to deficits, according to David Nelson, a global strategist in Chicago for Rabobank International.

"The increase in on-farm storage plus stronger farmer balance sheets has shifted power upstream toward the farmer," Nelson said in a telephone interview. "With this year's harvest, we've seen very little farmer selling, and storage has played obviously a big role in that."

World corn reserves measured before the start of 2012 harvests in the Northern Hemisphere will fall to a five-year low and U.S. inventories on Aug. 31 are forecast to fall to the lowest since 1996, according to the U.S. Department of Agriculture.

The shift raised prices for buyers including Cargill, Archer Daniels Midland and Bunge during the harvest that ran from September through December in North America. Generations of farmers often had to sell most of their stock at the lowest prices of the year during this period.

The swing back to farmer-owned bins can be viewed driving along Route 63 in Iowa and Interstate 74 in Illinois, the biggest corn-growing states, where scores of shiny galvanized- steel silos dot the fields.

U.S. farm income will reach a record $100.9 billion this year on higher crop and livestock prices, the USDA forecast Nov. 29.

On-farm storage for grains and oilseeds in the U.S. climbed to 12.5 billion bushels in December 2010, the most since 1989, according to the latest department estimates. Bin makers GSI and Brock say farmers are still adding more storage.

Rising grain costs and tighter supplies have already curbed profit for ADM, whose shares have dropped 7.4 percent this year while the S&P 500 Consumer Staples Index gained 6.9 percent.

As well as buying and selling commodities, the company also processes corn and soybeans to make biofuels, animal feed, sweeteners and starch. Burgeoning farm storage capacity is "incrementally negative" for grain processors, said Christina McGlone, an analyst at Deutsche Bank in Greenwich, Conn.

In Decatur, Ill. -- ADM's hometown and a U.S. corn-processing center -- buyers of the grain paid an average premium of 18.2 cents a bushel above the Chicago futures price to take delivery of corn in October, the most in at least four years, Bloomberg data show. A year earlier, they were paying a 2.8-cent discount. Last month, the average cash bid was 21 cents above futures.

Premiums paid by export terminals near New Orleans for corn have jumped 7.2 percent in the past year and are 52 percent higher than the average from 2007 to 2010, according to USDA data.

The processors "are having to bid up corn to get corn out of someone's hand, the farmer or elevator," said Tim Lenz, 43, who farms 2,600 acres of corn, soybeans and wheat in Strasburg, Ill.

Lenz is holding 60 percent of his corn crop in his bins, up from 40 percent a decade ago, when he first added storage. "It's not going to allow them to get cheap corn at the glut of harvest," he said.

While adding storage gives farmers "a few more cards in your deck," the so-called "ABCDs" -- ADM, Bunge, Cargill and French trader Louis Dreyfus -- remain powerful players in the commodity markets, said Illinois farmer Joe Zumwalt, 33.

"We are able to gain a few more cents than before," Zumwalt said. "They are going to be the 800-pound gorilla."

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