Stuffed US grain elevators brace for huge harvest

* Will exports of record harvest ease swollen storage?

* Rail freight seen key to preventing big bottlenecks

By Christine Stebbins

CHICAGO, Aug 25 (Reuters) - U.S. grain handlers, already
burdened with big wheat inventories, are bracing for a mammoth
corn and soybean harvest that starts in a few weeks across
America's heartland.

Merchants will have to find room for 17 billion bushels of
corn and soybeans -- the largest U.S. harvest in history. A
recent spike in U.S. exports after drought-stricken Russia
announced a ban on grain exports should ease some of the
storage pressure -- but not all.

"I don't see the dire situation that I thought we had 60
days ago. But it is still going to be fairly acute if the crops
are as big as we are talking about," said Joe Christopher, a
veteran grain merchandiser for Crossroads Co-op in Nebraska.

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Graphic showing U.S. stockpiles

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Graphic showing U.S. storage capacity

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Grain facilities east of the Mississippi River are already
plugged with soft red winter wheat as big storage premiums in
futures markets created by the CME Group's (CME.O) variable
storage rate plan entice firms to store, not sell, SRW wheat.

Wheat stocks at elevators eligible for CME futures
deliveries are up 70 percent from a year ago to 78 million
bushels -- nearly one-third of the 2010 SRW harvest.

That takes a significant chunk of storage space away in
Corn Belt east of the Mississippi River. Moreover, SRW wheat is
not expected to move from eastern elevators or farms any time
soon given the lucrative returns that grain firms and farmers
capture by keeping it tucked away.

So the best chance of wheat moving will be in the west,
where country elevators are also stuffed with hard red winter
wheat after two bumper summer harvests of low protein wheat.

"You know what a snake looks like after it eats a rodent?
That's exactly what our grain market is going to look like for
a few months," said Christopher, who is also a director at the
National Grain and Feed Association, a grain handlers' group.

THE CUP RUNNETH OVER

The United States is the world's biggest grain supplier,
ranking first in wheat and soybean exports and accounting by
itself for more than half of the world's corn exports. But this
year's record supplies will test the country's highly developed
network of truck, rail, barge and grain elevator handling.

The United States has about 9,000 commercial storage
facilities. Total U.S. storage capacity on and off farms is
21.8 billion bushels, according to 2009 government data. That
does not account for storage construction ahead of the new
crop.

Total stocks for the three main export grains -- corn,
soybean and wheat -- will reach an estimated 21.3 billion
bushels during harvest. That does not account for smaller U.S.
crops such as rice, sorghum and barley, which need space too.

"For the first time since late 1970s, U.S. grain elevation
capacity will be fully subscribed," said Kevin Kaufman, group
vice president, ag products, for BNSF Railway.

"It's not a crisis for agriculture if people recognize it
and prepare to manage it," Diana Klemme, vice president at
Grain Service Corp in Atlanta, said of the coming harvest.

Grain merchants often pile mountains of corn or soybeans on
the ground with covered tarps during harvest, then turn around
and load out those supplies first to unit trains bound for
processors, export terminals or feedlots. With luck the Midwest
will have a warmer, drier-than-normal autumn that will make it
easier to mound grain, industry sources said.

"The good news is that the crop appears to be early this
year, which will give us a little more time to get it all done.
That will eliminate some of the storage problem," said Hal
Reed, NGFA chairman and president of the grain and ethanol
group at The Andersons, a big Toledo, Ohio, grain merchant.

"The western belt has the storage issue. That's where the
big wheat crops are and where a big corn crop is coming," said
Roy Huckabay, grains analyst with The Linn Group. "Timing will
be everything."

U.S. WESTERN RAILROADS SEEN AS A KEY

Grain merchants say the wild card for success or failure in
moving more than 130 million tonnes of U.S. grain exports in
the coming year will be "logistics," meaning barge and truck
availabilities but especially railcars and diesel locomotives.

"Our main concern at this point would be how efficiently
those trains move in and out of the export terminals," said
Paul Hammes, a vice president of ag products with Union Pacific
rail. "Getting the turn once the train gets into port is going
to be the biggest variable for us."

The spotlight will be on the grain states west of the
Mississippi River, which see commodity flows to West Coast
ports and ethanol plants as well as flows into and out of
Canada and Mexico and to the Texas and Louisiana Gulf ports.

Rail rates to ship grain for August, September and October
have already spiked to highs last seen in the fall of 2007.

"You're talking about 25 to 30 cents a bushel cost in
freight that wasn't there last year," said Christopher.

One question is whether exporters will pump up their wheat
bids high to spark country elevators to move hard red winter
wheat, which accounts for half the U.S. wheat crop.

"With rail costs what they are the country will make every
effort to store every bushel some place. If those costs come
down everybody will get in a big hurry to ship," Christopher
said. "If they can't, you'll continue to have basis problems."

"For our railroad we anticipate full export programs for
the PNW, Texas Gulf and Lakes," BNSF's Kaufman said. "We have
committed the resources to meet this opportunity."

(Reporting by Christine Stebbins; Editing by Lisa Shumaker)