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December 2009 Archive for Cash Grain Insights

RSS By: Kevin McNew, AgWeb.com

Kevin McNew is President of Grain Hedge and Geograin. McNew was raised on a farm in central Oklahoma and received his bachelor’s degree from Oklahoma State University, and master’s and Ph.D. degrees in Economics from North Carolina State University. For over a decade, he was a Professor of Economics at the University of Maryland and Montana State University, focusing on commodity markets. He has received numerous academic awards for his research and outreach work, and was (and still is) widely regarded for boiling down complex economic issues into easy-to-understand concepts for applied life.

 

A Reason to Store Corn

Dec 01, 2009

Corn basis continued to sell-off slightly this week while soybean basis was mostly unchanged around the country.

 

Harvest continued in the Upper Midwest and Northern Plains this week, which kept corn basis on the defensive.  Losses of 3 or more cents on basis were fairly typical from Wisconsin to the Dakotas.

 

 

For soybeans, weakness was common in the Upper Mississippi river area as river markets in these areas start to close for the winter. Also, Gulf basis levels slipped a few cents over the past week in response to falling barge rates.

 

 

With harvest coming to an end, it’s a good time to consider what the market is offering for grain storage. Does it pay to store grain by forward contracting or are you better selling it in the near-term?

 

To answer that question, we examined forward price bids for over 3,500 grain buyers around the country. For each market, we computed a spread between their spot bid versus forward bids all the way out to July. These pair-wise comparisons were then averaged across states to produce the following tables for corn and beans.

 

In corn, there are clearly some major price incentives for storing. As usual, the Eastern Cornbelt has exceptionally good price returns to storage with Indiana and Ohio prices for June delivery at a 60-cent premium to spot. Even factoring in storage costs, it is clear most farmers could pencil a healthy profit by storing corn in these areas. For the Western Cornbelt, returns are slimmer, but still running around 30 cents a bushel for 6 months of storage to June. As compared to the 5-year average, most markets are currently offering twice the returns of normal.

 

Corn Forward Price Carry Relative to December 1 prices

State

Jan

Feb

Mar

Apr

May

Jun

5-Yr Avg to Jun

IA

8.4

13.2

14.4

21.6

22.9

29.8

15

IL

11.0

13.1

16.9

24.5

28.2

32.6

16

IN

23.1

30.7

33.9

47.8

54.8

60.5

20

KS

9.1

12.5

15.1

17.8

21.8

24.3

16

KY

18.1

21.2

22.4

26.0

26.5

22.0

17

MI

21.1

25.5

27.3

32.5

40.8

41.0

19

MN

9.5

14.7

16.0

24.2

23.6

32.3

15

MO

8.1

10.9

11.5

23.2

28.7

34.8

16

ND

7.9

13.8

18.6

36.8

39.4

46.1

21

NE

8.7

12.2

16.4

21.0

24.6

28.4

20

OH

28.9

42.5

42.5

47.7

55.5

58.5

21

SD

13.2

18.2

22.6

32.1

34.4

40.4

20

WI

13.7

17.2

17.7

27.2

29.2

34.8

18

 

For soybeans, returns are considerably less favorable and well below normal for most markets. Keep in mind that interest cost alone of storing $10 beans for 6 months is roughly 30 cents a bushel, so when you add on physical storage costs the economics of bean storage are not favorable. However, it may pay to do some homework in your local area and investigate premium markets for the best bids. GoGrain.com can help you find your “best” market to go to for your grain, net of any storage or trucking costs.

 

Soybean Forward Price Carry Relative to December 1 prices

 

State

Jan

Feb

Mar

Apr

May

Jun

5-Yr Avg to Jun

IA

-0.1

2.6

2.4

3.0

4.7

11.9

16.0

IL

8.4

10.7

2.7

1.3

6.2

8.0

14.0

IN

9.0

14.9

15.2

15.4

16.4

21.0

26.0

MN

4.9

12.5

11.0

13.1

11.8

19.5

11.0

MO

12.2

7.6

0.8

4.5

6.1

13.0

16.0

NE

2.0

1.9

2.8

1.2

4.6

3.7

14.0

OH

8.9

11.2

14.2

19.4

21.2

29.0

28.0

SD

13.4

24.4

26.9

25.4

25.9

25.5

10.0

WI

9.4

12.3

13.3

21.2

20.9

24.3

16.0

               

 

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