Volatility in the grain markets is causing a serious kink in the marketing process for 2009. I was recently at a farm conference and the scuttlebutt was that the elevators have been hammered so hard by recent margin calls that they just don’t have the cash to buy any 2009 contracts. I’d heard rumbles about the volatility levels as early as April of this year – wheat prices haven’t been this volatile since 1980, and traders in the first quarter were predicting a range of prices with a whopping 72% percent spread.

That’s hard on the elevators, which are often the market makers for these crops. This is not an easy time to be a grain or soy farmer – on top of the volatility, it seems likely there will be no counter-cyclical payments (scroll down to “Farm Bill Implementation Begins”) for wheat, corn or soybeans this year owing to the high general price on the markets. Small consolation if you’re locked into a low-price contract.

If elevators fail, which seems likely at this juncture (at the conference I heard of elevator owners who were saying they had been writing $2 million dollar checks for a days, were $50 million in the hole, and can’t get financing for operations because all their credit dried up), then the agro giants like Cargill or ADM are going to need to step in as market makers. Wheat farmers who don’t have marketing in place for 2009 should probably increase their leverage by building or buying more grain storage now – it’s not a good idea to count on the elevator being there for the 2009 crop at this point.