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Grain Elevators Feel Pinch of High Grain Prices

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Grain Elevators Feel Pinch of High Grain Prices

Prices of crops like corn, soybeans and wheat have soared. Just two years ago a bushel of corn traded under $2.50. The market closed yesterday right around $6 a bushel. It’s an upswing that’s had a serious downside for one part of the agricultural economy.

It doesn’t take long to hit farm country when you drive southwest from Chicago. The city quickly gives way to the suburbs, which give way to the rolling field of Illinois farm land. The landscape is accented with fading red barns and tall grain silos that soar up from the ground. These silos store crops from the time they’re harvested to the time the market’s ready to buy them. A farmer might have a silo or two, to store his corn say. But often he’ll sell his harvest to a grain elevator with a whole bunch of storage room. At Farmers Elevator Company in Manteno, Illinois—manager Alan LeMore shows me around.

LEMORE: This is the old elevator built in 1913, made largely of concrete. Each silo, they’re about 90 feet tall, they vary in capacity to about 35,000 bushel. The tank at the end is still mostly full of beans. It’ll hold 164,000 bushel.

Grain elevators basically function as middle men between farmers and commercial markets.

LEMORE: We give the farmers someplace to sell the grain, someplace to dump it until they are ready to sell it. We’re pretty much just storage here. We buy and sell from the farmer. We try to give them the best price possible that we can and still keep ourselves in the money, afloat anyway.

Grain elevators need more and more money to fulfill that middle man role these days. There are a few reasons, some of them are really complicated. But, the more money corn and soybeans fetch, the more money elevators need to pay farmers. And, the more they need to hedge their risk in the commodities markets. Elevators don’t make money until they sell grain; so they are often dependent on credit from their banks to tide them over. And these days they’re borrowing a lot more. Elevator manager Jerry Rowe says he’s borrowing four times as much as he was just two years ago.

ROWE: As a quote, somebody else had said, ‘How are you sleeping in markets like this?’ And it’s like a baby. I wake up every two hours and cry.

According to the National Grain and Feed Association those new credit needs are common throughout the industry. They affect large and small elevators.

ROWE: We’re dealing with more money than we have in the history of the industry. But, we’ll get through it. There are margins to be made out here. Anytime you have a market does something like this there are also opportunities that will surface. We’ll get through it.

Right now, it seems most elevators are getting the money they need from banks. But a grain elevator in Southern Illinois recently failed. An elevator in Nebraska declared bankruptcy this month. Illinois Department of Agriculture’s Stuart Selinger says grain elevators are on shaky ground, and the broader economic downturn isn’t helping.

SELINGER: I believe the economy as a whole is effecting the availability of capital. People are looking at companies much closer before they issue a loan.

The U.S. Department of Agriculture is also paying attention to the industry. It’s sending examiners out to check the books of a sample of five-dozen grain elevators to make sure they’re financially solvent. Selinger says everyone is on pins and needles, hoping that grain prices don’t go too much higher.

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