Have a plan to make your storage pay
You have to know when to hold ‘em and when to fold ‘em. After failing to fold ‘em ahead of the year-long price drop, farmers chose to hold after the 2013 harvest. As of Dec. 1, USDA estimated 6.8 billion bushels of corn were on farms, which is about 60% of all stored corn. For soybeans, 955 million bushels, or 45% of all stored soybeans, were on farms.
For 2013 grain, bins have been a useful marketing tool, says Jerry Gulke, president of the Gulke Group. Corn prices rallied more than 70¢ from December to early March. "Storage helps us not have to do panic selling," he says. "On-farm storage gives us better control of our financial destiny."
Yet, Gulke says, this flexibility has to be balanced with responsibility. Grain bins can allow you to be a "do-nothing" marketer.
For the past 30 years, the best window for pricing old- and new-crop corn is March through June, says Steve Johnson, Iowa State University farm business management specialist. "You’ll see better basis opportunities in the spring when farmers are busy," he adds. "By July and August, futures will go down and basis will widen as farmers move old crop to make way for new crop."
Check Your Bins. Use weather uncertainty during spring planting to lock in prices and capture better basis, Johnson says. If farmers think prices will increase, they can use a basis contract using July futures, be long July futures or buy a July call option. These strategies force making a marketing decision by late June.
The shelf life of corn is about 10 months, after which it starts deteriorating, Johnson says. "Grain quality is of the upmost importance," he says. "Every week, farmers need to climb up on that cold, icy grain bin and check for quality issues."
Grain in the bin has a cost, though, and farmers need to factor it into their business plans. Johnson estimates corn stored on-farm costs 2¢ per bushel per month plus 2¢ per bushel for interest. Commercial storage is double that. On-farm soybean storage costs are lower, but interest expense is about 5¢ per bushel per month.
Most grain is sold when farmers need cash, Johnson says. "Farmers are coming off three great years of row-crop farming," he adds. "A lot of them didn’t need to sell all of their bushels to generate cash flow." However, many forecasts show the potential for much lower grain prices, especially if 2014 production is large.
So far this year, Gulke says, farmers have done a good job selling grain and filling an empty pipeline. "We are independently acting much smarter than we have in the past," he says. "I don’t think the market has come to grips with that just yet."
For more resources on maintaining grain quality and marketing grain in storage, visit www.TopProducer-Online.com/stored_grain