Weekly Insights: State Stocks
State Stocks
The factors driving state stocks are production, processing, exports and how much of the early harvest enters the supply chain. Iowa and Illinois are the two largest corn and soybean production states, and two of the largest processing states. So, it is not surprising they are also the two largest states in terms of stocks. Typically, a manufacturing facility has two months of supplies on hand.
U.S. Soybean Stocks by State (2020/21 — September)
Source: USDA, Higby Barrett
U.S. Corn Stocks by State (2020/21 — September)
Source: USDA, Higby Barrett
Wheat stocks are primarily held in the Plain States or Kansas, Nebraska, South Dakota, and North Dakota. The Plain States account for 40%of the stocks in September and almost half the stocks in June.
U.S. Wheat Stocks by State (2020/21 — September)
Source: USDA, Higby Barrett
Exportable Supplies
Assuming the domestic ethanol and crushing plants source the corn and soybeans locally, what remains is exportable supplies. After domestic moves are allocated, the remaining supply is exported or stored. The two main locations for exportable supplies of corn and soybeans are near the Inland Mississippi River System and the Upper Plains or Northwest regions of the Corn Belt (South Dakota, North Dakota, and Minnesota). For wheat, the Plain States of Kansas, Nebraska, South Dakota, and North Dakota are the main source of exportable supplies.
Grain and soybean stock locations play a role in which ports receive export volume. Major export locations must have stocks to ensure the ocean-going vessel can be serviced. For example, the Pacific Northwest has 10 major export terminals that could be all servicing Panamax to Capesize vessels that require an average load of 60,000 metric tons or more of grain and soybeans or well over a half a million metric tons.
The two largest export ports for agricultural crops and products are the Center Gulf and PNW. Combined, the ports market share accounts for 75 – 80%of the total exports of row crops. PNW is more wheat focused and the Center Gulf is more corn focused.
U.S. Corn, Soybean and Wheat Trade Routes
Source: NOPA, USDA, Army Corps, Class I Railroads, and Higby Barrett
Center Gulf
The Center Gulf is the primary export location for grains and soybeans. Center Gulf draw area includes 75 to 125 miles from Inland Mississippi River System, and multiple rail options. From farm to Center Gulf, barge is the most efficient method to ship bulk grains and soybeans. The rail option is more expensive, but the rail price is the published tariff price, which means the railroad has the option to lower its price. Generally, the railroad is more likely to agree to a lower price if the sender guarantees volume and ships a longer distance.
In June and July, the holder of corn and soybean stocks begins to feel the pressure to move crops to create elevator space for the following crop. As the U.S. soybean harvest begins in August, the harvest price pressure increases. Farmers in an early harvesting states (Bootheel of Missouri and south) know if they store the crop, the cash price is going to decline over the next two months. So, the primary reason for storage is to aid the harvesting operations and the best marketing option is to immediately push the crops into the marketing channel.
For farmers that harvest in September and early October, some of the crop will flow directly into the marketing chain. The amount of the September and early October corn and soybean harvest required to fill the global export pipeline for June, July and August depends on the success of the South American crop.
For example, if La Nina reduces the Brazilian corn and soybean crops by 10%, world importers will shift export volume to the U.S.
For the northern regions of the country where grains and soybeans are harvested after early October, to store the crops at a marketing year low and capture the price carry into July is an enticing marketing option. If farmers are going to store crops every year, the next logical step is to explore addition supply chain investments, such as shuttle elevators or processing facilities.
U.S. Soybean Cash Seasonal (2010 to 2019)
Source: USDA, NASS
Due to the early harvested crops moving directly into the supply chain, traders focus on the stock levels in the Upper Mississippi River (Missouri, Illinois, Iowa, Minnesota, and Wisconsin), Eastern Corn Belt (Indiana, Ohio, Kentucky, and Michigan) and the Plain States (Kansas, Nebraska, South Dakota, and North Dakota).
The Upper Mississippi River has always been a major supplier of volume for the Central Gulf. During the massive ethanol buildout, the ability to source corn was dramatically limited. In fact, Iowa went corn deficit for a few years, which dramatically lowered barge loadings. With corn and soybeans increasing yields and processing increasing at a much slower rate, exportable supplies have increased and in turn, barge loadings are increasing.
Over the last couple of years, high water levels and the U.S./China trade war left corn and soybean stocks stranded, especially soybeans. In September, Upper Mississippi River soybean stocks increased from 97 million bushels in 2016 to 518 million in 2019. In 2020, September soybean stocks are at 259 million bushels. Although half the previous year’s stock level, 259 million bushels is still a historically high amount of stocks. It should be noted the Upper Mississippi River closes around December 8.
Upper Mississippi Corn Stocks (Iowa. Illinois, Missouri, Minnesota, Wisconsin)
Source: USDA
Upper Mississippi Soybean Stocks (Iowa. Illinois, Missouri, Minnesota, Wisconsin)
Source: USDA
The Eastern Corn Belt also experienced a large increase in ethanol production, but not nearly as large as the Upper Mississippi River draw area. The production near the Ohio River is largely exported or processed locally. The production further away from the Ohio River is railed to the Southeast poultry market for feeding or crushing plants, and East Coast poultry market for feeding, export, or processing.
Eastern Corn Belt Corn Stocks (Indiana, Ohio, Kentucky, Michigan)
Source: USDA
Eastern Corn Belt Soybean Stocks (Indiana, Ohio, Kentucky, Michigan)
Source: USDA
Pacific Northwest (PNW)
The exportable supply of grain and soybeans is large in the Upper Plains. The reason is new varieties of corn and soybeans has replaced other crops, mainly wheat. As the Corn Belt has migrated west and north, the domestic infrastructure has not followed. The threat of a domestic plant opening gives pause for investors considering building export supply chain assets. Eventually, domestic users will take advantage of the production, but until that occurs, farmers in the Upper Plains are dependent on rail service for export shipments. Rail is the most efficient transportation mode in rural areas where the truck cost to the waterways make transporting by barge cost prohibitive. Rail is the dominant cost when exporting crops through the PNW.
The trade war hurt the PNW the worst because its primary destinations are Asian countries. When lower prices offset some of the reduced Chinese export volumes, the PNW was not able to serve European locations, but the Center Gulf was able to capture the export volume.
Plain States Corn Stocks (Kansas, Nebraska, South Dakota, North Dakota)
Source: USDA
As reported in the September 17 Weekly Insights, ocean going vessels are lined up at the PNW to pull stocks out of the Plain States. Still, with the Plain States’ corn stock level near historic highs, the price response to extremely good export volumes should be limited. For example, a 400-million-bushel stock reduction for corn and soybeans would still leave ample ending stocks.
Plain States Soybean Stocks (Kansas, Nebraska, South Dakota, North Dakota)
Source: USDA
Apart from some double crop soybean/wheat acreage in Arkansas, Tennessee, Kentucky, and Illinois, almost all the winter wheat is grown is beyond the draw area of the Mississippi River System. Some wheat will be trucked to the Port of Catoosa in Oklahoma as a return trip from delivering fertilizer. Some wheat volume will also be railed to the Texas Gulf. By and large, the PNW is the primary port for wheat exports.
Plain States Wheat Stocks (Kansas, Nebraska, South Dakota, North Dakota)
Source: USDA
Texas Gulf captures wheat volumes from Texas to Central Kansas. The Texas Coast has eight export elevators and has capacity to export much greater volumes. The issue is other port locations are more cost competitive for most of the wheat locations. Another issue is local cattle operations feeding wheat, which reduces exportable supplies.
Winter Wheat Production
The Columbia River System snakes into Idaho. The wheat grown in the PNW is either moved to the river by rail or truck. The wheat also comprises of club and white wheat varieties that are very popular in Asia. The low protein level makes excellent noodles. Americans favor the higher protein wheat varieties, such as durum.
Pacific Northwest Wheat Stocks (Washington, Oregon, Idaho, Montana)
Source: USDA
A quick glance at the Other Spring Wheat illustrates why the wheat is exported off the West Coast. For North Dakota wheat production, the PNW does face competition from Vancouver Canada port. If a farmer is closer to an elevator on the Canadian Pacific rail line, Vancouver port will likely capture that export volume.
Other Spring Wheat Production
The agricultural markets have some very solid reasons to be excited about the prospects of prices increasing. A trade deal that appears to be dramatically increasing export volumes. A massive expansion in the money supply that could trigger inflation. An increasing world population that is becoming wealthier. The possibility of a La Nina reducing the size of the Argentina and Brazilian crops. What needs to be remembered is the world stock levels are very large. Also, world cropland is expanding despite the large world stock levels. Most importantly, the large stock levels and expanding cropland is a reality while the bullish factors have yet to fully emerge.
