Use hefty bin holdings to take control of sales
Take a drive down country roads in the Corn Belt, and you don’t need a USDA report to tell you farmers have been harvesting bumper crops and investing in grain storage.
For instance, Illinois on-farm corn stocks have almost tripled from September 2014 to September 2015, and on-farm storage of soybeans is up a staggering 520%.
The situation is similar in other corn- and soybean-producing states (click here to see the infographic for a national snapshot).
Two Key Drivers. Producers have added bins for two reasons, says Farm Journal Economist Bob Utterback.
First, as farms grow bigger and combines get faster, farmers don’t want to interrupt harvest for a trip to the elevator, says Utterback, president of Utterback Marketing Services.
“They want to run as hard as they can and not have storage be the limiting factor,” he explains.
Second, they’re not interested in selling sub-$9 soybeans and sub-$4 corn. “Farmers are storing grain on the farm because they think prices are too cheap this year,” Utterback says. “It gives them flexibility for when to sell.”
But marketing in today’s volatile environment should involve more than just holding grain until prices rise.
“The majority of farmers have not improved their marketing skills the past few years other than leaving more time for futures prices and basis to improve,” says Steven Johnson, farm management specialist with Iowa State University Extension. A new take is needed for low-priced markets.
What Does It Mean To Me?
Newly added on-farm grain storage requires a new marketing mindset.
Use bins to carefully time sales rather than hold out for higher prices.
Study seasonal trends for prices and weather to inform your decisions.
The rallies of 2010, 2011 and 2012 “did more damage than good to farmers’ marketing psychology,” Johnson points out.
A New Era. Utterback agrees. “We had a period of time when we had the ultimate storm for the bull,” Utterback says. “You put it in the bin, and you were paid handsomely.”
The situation is different now, thanks to continued bumper crops and easing global demand. A marketing plan with specific price and time goals will be needed to make all those new bins pay.
6 Ways to Maximize Storage Returns
1. Before you expand your storage, look at farm finances, including profit margin. Expansion is “not one-size-fits-all,” says Steven Johnson, farm management specialist with Iowa State University.
2. Consider your needs. Is a grain bin a better investment than a new combine? Jerry Gulke, president of The Gulke Group, thinks so. “You need to be proactive and plan ahead with on-farm storage,” he says. “It’s more important (to your bottom line) than a long green or red machinery line.”
3. Integrate storage into your marketing strategy. Use your bins to make grain sales that take advantage of historical basis trends and other supply and demand trends in your area.
4. Use a variety of marketing tools. “More farmers can use on-farm grain storage to capture basis, especially for corn,” Johnson says. Lock in an attractive basis and settle the final futures price with your grain merchandiser before May 1 or July 1 to capture the higher futures prices.
5. Learn seasonal futures prices and basis patterns. “The majority of the time, you will see the highest futures prices in the spring, which you can use to capture both the carry and the seasonal bounce in the market,” says Bob Utterback, president of Utterback Marketing Services.
6. Be pragmatic in your pricing expectations, and make incremental sales often. “Most farmers don’t think like elevators,” Utterback says.