With the 2013 harvest largely completed, many farmers have turned to delayed pricing as they wait to see what the corn market will do. But is delayed pricing a smart move?
Unfortunately, it can actually pose more challenges than opportunities, says Jerry Gulke, president, The Gulke Group.
"There’s an option that elevators offer that says bring us some corn, deliver it and get it off your farm," Gulke tells Weekend Market Report’s Pam Fretwell. "You can delay the pricing (DP), and for that it will cost you a nickel a month, let’s say, some places more. Whenever you want to sell that grain, just let us know, and we’ll price it for you. So under that situation you don’t have the basis locked in and you don’t have the futures locked in. So the basis could go up and the futures could go up, or the futures up and the basis down, but if you’re inherently disgusted with the fact that corn now is below the cost of production for a lot of people, (the farmer who hasn't sold might be saying,) 'I’m not going to give it away.'"
He encourages farmers to consider the numbers behind the proposition of delayed pricing.
"Now you’re going to pay 5 cents a bushel to store it at an elevator," Gulke continues. "I looked at the elevators that are offering this, and some were in my area, there’s not a lot of carry. The basis is pretty good right now, but you get out into March and they’ve taken a dime away because they think the farmers are eventually going to sell. So when you get all done, if you hold it three months it takes 15 cents a bushel to get your money back, and then the basis right now might be 10 under, 10 over or whatever, and they’re quoting 30 under. It’s going to be really hard."
Ultimately, opting for delayed pricing is a gamble that that becomes more costly with time.
"The market’s going to have to make a big move before you have any money in it," Gulke notes. "I think it goes back to the point that if you don’t have your own storage—you go to an elevator—you’re going to build somebody’s storage, and you might as well build your own over time because you lose beneficial interest in your grain. I’m going to give you my grain, fill the pipeline, but I’m going to pay you for the right to re-own it later or to sell it at a higher price. It’s kind of an oxymoron. You can’t fill the pipeline and keep somebody bidding on your grain. You’ve got to either hold it off the market, make them come and get it or have a short crop like we’ve had in the last couple of years."
Click the play button below to hear Gulke’s complete market analysis in the Weekend Market Report, including a discussion of land prices and auctions: