It Takes Bull Move to Make Storage Pay

October 13, 2010 04:01 AM
 

It will take a bull move to make storage pay for corn and soybeans, according to analysis by Carl German, Extension grain marketing specialist at the University of Delaware. Using basis on the Eastern Shore and today’s futures prices, he used a current cash corn price of $5.92. Storage costs plus interest indicated a breakeven price of $6.35 for March delivery. Today’s futures price plus expected March basis is $6.27, indicating a 9¢ loss to storage. July’s net projected at -34¢. In other words, hedging stored grain at today’s levels would not be a good business decision—and would open you to margin call cash-flow needs if futures rise. So if you are bullish, your choice might be to store unpriced.

German points out that it would take better-than-expected basis improvement and/or a continued improvement in futures prices to cover the costs of storage. So barring a bullish attitude you might want to sell cash corn now and buy a call option. A $6 call cost 67¢/bu. today—basically replacing the cost of storage with the premium cost.
 
Storing a buying a put option in case the market falls is cost-prohibitive he says.
 
For the full Webinar, including factors affecting the market today and a look at the soybean storage decision, click here.
 
For a worksheet to fill in your own basis and storage costs, visit www.grainmarketingprimer.com and go to page 25 in the Futures section.
 

 

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