Consider Risk Management for Stored Grain

September 22, 2010 06:50 AM
 

 

Once your grain is in the bin, your job is not done, cautions Carl German, University of Delaware Extension grain marketing specialist. "You still need to manage price risk." 
 
"Your decision to store grain generally is based on two reasons—expectations that basis will improve and better prices offered in a later futures month," he notes. Even before harvest this year, basis was poor in many areas as elevators refused to follow futures prices higher. That led many growers to "just say no" to cash bids in expectation that basis will improve later. 
 
The next way to make money from storage is through the spread in futures prices from one month to the next, says German. "Because futures prices are even more volatile than basis, you may want to use a storage hedge to lock in the better price in out months or a put option to remove the risk of prices falling."
 
Don’t forget that storing does incur costs, German says. "Even if you store on the farm, you should allow some value for handling and management, drying, interest and shrink compared with if you delivered right out of the field." 
 
To walk through calculating storage cost and the potential returns offered by various risk-management strategies in real time, register for AgWeb’s free one-hour Webinar with German on October 12 at 1 p.m. Central time. 
 

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