By Karl Plume and Tom Polansek
LAKE CRYSTAL, Minn./CHICAGO (Reuters) - U.S. grain warehouses are filling up so fast with a bumper harvest that they are storing soybeans and corn out in the open despite the risk of damage and even refusing crops from farmers without binding contracts.
The scramble shows that even in the third year of a global supply glut the exceptional yields and weaker than expected U.S. exports still wrong footed some farmers, storage operators and traders, meaning the outlook for farm incomes and prices might get even bleaker than now painted by official forecasts.
Growers, still hoping to wait out the downswing, want to store as much of their crops as possible, but warehouses are rejecting spot deliveries because of a lack of space, in some cases for longer than farmers can remember.
"We're out of storage," said Richard Guse, a Minnesota farmer who also co-owns a grain elevator. "Our next best option is to find a place to sell it, so you get that harvest pressure."
Minnesota, Iowa and Nebraska, which account for a third of U.S. corn and a quarter of soybean output, have produced record yields thanks to near-perfect conditions after some bad weather early in the growing season suggested yields could drop.
As a result, farmers in Southwestern Minnesota, for example, are getting paid about 15 cents less per bushel for their corn and soybeans than they would if there was enough space, estimates Ed Usset, grain marketing economist for the Center for Farm Financial Management at the University of Minnesota.
That means an even deeper dent in farm incomes given the cash price for corn in the area is about $3.25 a bushel, already well below the estimated $4 production cost, Usset said.
The squeeze caused by storage bottlenecks comes against a backdrop of South American farmers planting massive crops this fall, adding to record global soy inventories and near-record corn stocks. With the strong dollar weighing on U.S. exports and crop prices already down 50 percent from their 2012 peaks, farm incomes are under pressure, already expected to drop 36 percent this year, according to the U.S. Agriculture Department.
Poor returns could prompt farmers to idle some of their less-productive farmland next spring or devote more to crops that are cheaper to sow like sorghum. They may also cut back on fertilizer or premium seeds, which could drag down yields.
For now, they are struggling to make space for record harvests or trying to sell it, even if it means taking a further hit.
Crystal Valley Cooperative, which owns elevators in southern Minnesota, sold grain and loaded it on trains at harvest time for the first time in years instead of waiting until after the harvest to capture better margins.
"We gave up a margin opportunity, but just to make sure we could handle everything," said grain division manager Jeff Spence. "We thought that was the prudent thing to do."
For spring 2016 deliveries, prices are at least 23 cents per bushel higher than spot prices.
The cooperative's massive rail-loading terminal in Madelia, Minn., temporarily stored 200,000 bushels of soybeans in the open air for the first time, risking damage from rain, a cost the elevator would bear. A smaller elevator in Lake Crystal, Minn., emptied out a machinery shed to store soybeans.
Crystal Valley gained new clients after rival cooperative Working for Farmers' Success (WFS) refused to take soybean deliveries in southern Minnesota and northern Iowa through November from growers without binding contracts, Spence said.
Mike Minnehan, WFS vice president of operations, said the restrictions, in place since Oct. 6, were necessary because farmers wanted to pay to keep crops in the company's storage facilities without actually selling the crops.
"There wasn't a lot of pre-selling (by farmers to the elevator), so you didn't have an opportunity to haul it out as it was coming in," he told Reuters. Minnehan added the company might make some exceptions now with the traffic slowing and the harvests winding down.
Elevators cannot sell crops in storage and move them to processors and ethanol plants until farmers agree to sell.
The debacle may encourage farmers to prepare for big harvests by signing forward contracts to ensure they can make deliveries or by securing temporary storage, Usset said.
The feed-grain glut is a boon for hog and poultry producers, feed makers, soy processors and ethanol plants in the western Midwest, giving them some of the lowest costs in years.
Some of the more fortunate, who like Minnesota farmer Andy Pulk still have storage space, continue to hold out for better prices. Pulk is hoping that corn futures will rise to about $4.50 per bushel from around $4 for the futures contract representing the next harvest.
"It's not that I'm hoping for a $6 home run, but I'm hoping for a base hit," he said.
(Reporting by Karl Plume in Minnesota and Tom Polansek in Chicago; Editing by Jo Winterbottom and Tomasz Janowski)