Rising Bond Yields Double Grain Storage Costs for Farmers

The relentless rise in government bond yields this fall is reshaping financial decisions for farmers, particularly those considering grain storage. Higher borrowing rates have significantly increased the opportunity costs of storing grain, making it essential for producers to carefully assess whether holding crops this harvest makes financial sense.

David Widmar, co-founder of Agricultural Economic Insights, highlights that storing grain comes with an opportunity cost. Farmers could otherwise use that capital for other purposes, such as applying it to an open line of credit or investing in savings accounts. The surge in long-term bond yields means that the cost of storing grain has effectively doubled in recent years, a stark contrast to the ultra-low borrowing costs farmers were accustomed to.

The impact of rising interest rates is particularly pronounced for commodities like corn and soybeans. For example, a producer storing corn from October to March with an interest rate of 10% and a harvest price of $5.00 per bushel would incur operating loan interest costs of $0.21 per bushel, a 162.5% increase compared to a 4% interest rate. Similarly, soybeans trading near $13 a bushel face magnified costs, with storage expenses roughly doubling over the past few years.

Experts emphasize the importance of understanding the full cost of storage, including opportunity costs. Alan Hoskins of American Farm Mortgage Co. advises farmers to know their daily carrying costs and consider risk-management strategies, such as using futures or options, to cap their downside and stop the daily storage meter. While storage can still be profitable for those with strong convictions about post-harvest price movements, it is crucial to make informed decisions with all expenses in mind.