Grain elevators “are in for a difficult 2016/17 season,” says agricultural lender CoBank, citing demands for more storage space while prospects darken for revenue from grain merchandising and grain drying.
CoBank senior economist Tanner Ehrnke said financial belt-tightening was certain and “pressure for consolidation will likely intensify in an environment of slimmer profit margins.”
A growing concern among co-op elevator managers is the availability of storage space for the large crops forecast for this fall, says CoBank. Due to low commodity prices, a large amount of grain is being held in the bin rather than sold by farmers. Elevators will have to create additional storage space to hold supplies into 2017, said Ehrnke.
Lackluster commodity prices reduce opportunity for elevators to make money by selling grain they purchase from growers. At the same time, forecasts of potentially dry fall weather will mean less demand for grain drying, work that generates up to 10 percent of an elevator’s revenue.