With harvest right around the corner, old crop is still taking up bin space. According to Mike North of Commodity Risk Management Group, old crop corn is liability going into the fall. So, what should you do to make room?
“Well basis has remained wide throughout the country has been very disheartening for those who have been storing corn,” North says. “The thing we have to remember is that as we work into this next harvest if there is a yield cut, that’s wonderful news for new crop, but because we have all of that harvest corn coming to the market we're not likely to see basis improve and we're not likely to see much price improvement.”
North says at that point it becomes a liability in the bin.
“We've encouraged our clients [to be making sales] on these rallies,” he says. “[Clean] those bins out.”
According to North, if farmers want additional opportunity in an upside market, they should look at a call option.
“Don't be keep in corn in the bin, it just becomes more of a liability as we walk our way through the next several months,” he says.
When it comes to new crop, if yields shorten up, North anticipates basis opportunity could get better.
“So there is some opportunity there for that new crop walking forward into 2018,” he says. “But your cash flow has to allow you to do that [and you have to have bin space].”
Given carry is “decent,” North offers this strategy: sell new crop forward into a little better price wait for basis to improve.
“Set your basis later and in the meantime, call options are cheap,” he says. “Be carrying some call strategies to allow you upside if there is some sort of a runaway bull market around the corner.”