CHICAGO (Reuters) - As U.S. farmers turn in record grain crops this autumn, many will have a powerful new tool - giant sausage-shaped storage bags - to help them avoid the lowest prices in years and gain more control over trade with giants such as Cargill Inc [CARG.UL].
Demand has surged this summer for the white polyethylene bags the length of a football field and the equipment required to fill them, according to manufacturers and wholesalers.
They allow farmers to store millions of bushels of corn and soybeans at a fraction the cost of conventional silos and far more efficiently than leaving grain in the open air.
The bags, which are about 300-foot (91-m) long and 10 feet in diameter, are common on the Argentine Pampas but until recently a rare sight in the U.S. Midwest, where the expansion of big elevators and 50-foot high silos has generally kept pace with ever-expanding crops.
But with many bins still overflowing with last year’s crop in the world’s top grain grower, farmers are snapping up these systems as a practical necessity ahead of bumper harvests, and as a safeguard against another winter of railroad delays.
They may also be a sign that farmers will not be rushed into dumping their harvests quickly. Prices for corn to be harvested in autumn have tumbled as much as 18 percent so far this year, leaving growers hoping for a rebound.
“This year, with the Canadian and the U.S. markets both demanding product, we’re running overtime and trying to keep up with orders,” said Jerry Sechler, vice-president of sales at Loftness Specialized Equipment Inc, a Hector, Minnesota-based privately-owned firm that introduced bagging machines into the United States in 2008 after studying operations in Argentina.
The systems also represent the latest front in an ongoing power struggle in the rural heartland between farmers, who want more say in how and when their crops are sold, and merchants such as Archer Daniels Midland and Bunge Ltd, who control the main arteries of trade.
ADM and Bunge have cited the expansion of on- and off-farm grain storage capacity for their slumping agribusiness margins in recent quarters as it is forcing them to pay up for grain to keep exports flowing and processing plants running.
“Within the last year, that fact has had a negative impact on overall margins in the grain chain. I think it will take another good crop for that to reverse,” Bunge CEO Soren Schroder told Reuters.
Years of high prices on record production helped by fencerow-to-fencerow plantings and historic gains in yield have given farmers healthy profits that they can spend on storage to see them through rough times, like this year.
On- and off-farm storage capacity jumped 20 percent in the decade to Dec. 1, 2013, according to the U.S. Department of Agriculture, with some of the biggest gains of more 30 percent in North and South Dakota, as farmers switched to corn, which yields about twice as many bushels per acre than the area’s traditional wheat crop.
Firms such as CTB, a subsidiary of Warren Buffett’s Berkshire Hathaway Inc, make the traditional metal storage silos that can be seen across the U.S. grain belt.
Now, in the Dakotas and elsewhere in the northern U.S. Plains, where winter’s rail problems had already stranded a large share of last year’s crop, bagging equipment suppliers are scrambling to keep up with demand.
“There are people that would have never bagged three years ago that are now almost forced to consider it because the elevators just can’t take any grain with the railroad not getting their job done,” said Craig Fisher, a farmer in Richardton, North Dakota and owner of Antelope Farm Supplies, which sells bags and bagging equipment.
His sales of bagging machines have exploded in just the past week after a patchy start to the season due to adverse weather which had kept production prospects clouded.
“Everything I’ve got is spoken for now and I’ve had to reorder. We had some come in today and those are already sold.”
Fisher is now expecting a 25 percent jump in bagging equipment sales this year, after a similar jump in 2013, based on inquiries from customers. He has also sold two semi-truck loads of the plastic bags this summer and is awaiting a third 96-bag truck in about a week.
Bagging keeps grain in better condition and for longer than the standard U.S. practice of piling surplus on the ground and covering it with tarps. The white outside reflects the sun’s heat while the inner layer is black, acting as a barrier to sunlight and helping maintain a lower than ambient temperature inside.
The cost of storage in a single-use bag is around 5 to 7 cents per bushel, plus charges for loading and unloading equipment, which together can come to anywhere between $60,000 and $160,000.
GrainLogix, the system made by Loftness, can stuff 30,000 bushels an hour — nearly filling a whole bag of the kind made by companies like Up North Plastics which can store up to 34,000 bushels of grain.
By comparison, permanent storage costs $1.50 to $2.00 per bushel to build, or several hundreds of thousands of dollars, with waiting lists for installation often months long.
With the harvest slated to begin in a matter of weeks, the white sausages could lead farmers into a post-harvest stand-off with the grains merchants and push food costs higher.
John Brink, who grows corn on about 1,000 acres (400 hectares) near Centralia, Ill., said he expected to store most of his crop until prices rise and thought other farmers would do the same.
“We’ll lock it away,” he said. “We’ll slam the door shut and throw away the key for a while.”
Additional reporting by Thomas Polansek; Editing by Marguerita Choy