Rising Cost of Carry Will Force Co-op Grain Elevators to Lower Bids, Widen Basis

Key Points

• Grain merchandisers have endured rising costs of storing, or carrying, grain and oilseed inventories over the past year due to rising interest rates, high crop prices and rising operating costs like transportation, insurance, fuel, electricity and labor. CoBank forecasts the financial cost of carry will reach record highs in the upcoming 2023/24 crop year for corn, wheat and soybeans.
• The rapidly rising cost of carry is motivating stakeholders in opposite ways: Grain merchandisers want to move inventory faster while end users want to delay taking ownership to minimize their own inventory costs.
• Cooperative elevators are required to buy and market their members’ grain and oilseeds, regardless of whether the economics of storing and handling commodities are favorable. Grain co-ops, though, have control over their local bid.
• The inverted futures markets (when later-dated futures contracts are priced lower than nearby contracts and do not cover the cost of storage) further penalize elevators for storing grains and oilseeds.
• If interest rates maintain their current high level and futures markets remain inverted into the new crop year, many grain cooperatives will lower bids and widen their basis to cover the high cost of storing commodities.

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