Trying to improve local grain basis in North Carolina as deficit growsTrying to improve local grain basis in North Carolina as deficit grows
A summit this past summer between three North Carolina commodity groups representing corn, soybeans and small grains and three major pork and poultry companies helped move the needle in the right direction.
February 5, 2020
North Carolina Feed Grain Initiative launched by North Carolina State University and other cooperators in 2012 to encourage North Carolina hog and poultry companies to buy more grain from state farmers.
At the North Carolina Commodities Conference at the Sheraton Imperial Hotel in Durham Jan. 9, Nick Piggott, North Carolina State University Extension economist, said progress is being made, but there is much work to be done. He noted that a summit held this past summer between three North Carolina commodity groups representing corn, soybeans and small grains and three major pork and poultry companies helped move the needle in the right direction.
“The only way we can improve basis (the difference between the current local cash price and the futures price of the contract with the closest delivery month) is if the integrators, in other words the livestock industry, would be willing to pay more for locally produced grain,” Piggott said.
“What’s in it for them? The average corn bushel that comes from out of state comes 900 miles to North Carolina. Wouldn’t you be willing to pay a little bit more with less risk of having to bring that bushel 900 miles?” Piggott said.
Piggott said the summit proved valuable because it started a conversation between the state’s grain producers and the state’s pork and poultry companies. He said progress is being made, but more dialogue is needed.
It’s important to better understand the cost advantages of integrators buying local grain over grain shipped by rail from the Midwest to North Carolina.
Piggott and his team have begun a research project evaluating the costs of shipping grain from the Midwest to North Carolina. He said better understanding these costs will allow for a more transparent conversation about what basis should be.
The challenge in North Carolina is grain production is moving in the wrong direction. Over the past four years, major row crop acreage has declined 17 percent, while feed grain acreage has declined 28 percent. “When you have the livestock industry in your own backyard, that is a great concern,” Piggott said.
At the high point, 50 percent of North Carolina’s row crop acreage was in feed grains. Now it’s 39 percent. Corn acreage has increased 7.8 percent in North Carolina, but Piggott said the concern is wheat acreage has seen significant decline.
When wheat prices were higher, North Carolina had close to one million acres planted in 2013, but acreage has declined each year since then. In 2019, North Carolina had 300,000 acres planted to wheat. Piggott would like to see more wheat planted in North Carolina.
“One thing we learned at the summit is wheat is as good as corn when it comes to feeding hogs. If we’re short on corn, this wheat crop we plant is going to become very valuable around harvest time.” Piggott said.
“When we put the pedal to the metal in this state, we can produce 180 million bushels of feed grains. Today, we are at 110 million bushels; that’s 70 million bushels less,” Piggott said. “Why did acreage drop off? Economics and profitability.”
On average, North Carolina produces about 145 million bushels of feed grains per year. Production declined to 110 million bushels in 2019 and 112 million bushels in 2018 due partly to both drought and hurricanes.
“What that did is accentuate our feed grain deficit, from 160 million bushels up to 200 million bushels. I estimate now we need about 310 million bushels of feed grains. With the expansion of poultry in North Carolina, this is going to go up. I don’t know how much. That’s even more pressure to grow more feed grains locally. That should be good for the demand for our commodities,” Piggott said.
Of course, the challenge of profitability remains for North Carolina’s wheat, corn and soybean farmers. Piggott said there are two ways to improve profitability: Yield and price. North Carolina State University is working on ways for farmers to improve their yields. Piggott said the key to improving price is to have the integrators pay more in basis for local grain.
Still, North Carolina struggles with feed grain yields because weather conditions are either too dry or too wet at the wrong time. The challenge is to improve corn yield when dealing with both hurricanes and drought.
Midwest corn producers have the benefit of biotechnology to develop corn hybrids targeted to them. “Until the seed companies figure out how to put a snorkel on a corn plant, we’re going to have some trouble here in North Carolina. We need to do some other things in varieties,” he said.
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