Reality Check: Big Stocks, Big Crops

November 1, 2018 01:27 PM
 
Even after growing season challenges, the corn and soybean crops are coming in at record or near-record yields in multiple states.

Even after growing season challenges, the corn and soybean crops are coming in at record or near-record yields in multiple states. Coupled with plenty of stocks and geopolitical drama and here we are. On the corn side, export markets are hungry and domestic ethanol demand and feed usage are strong, says Naomi Blohm, senior market adviser, Stewart-Peterson. For soybeans, domestic use for crush remains strong but without China, our biggest export market, the economic outlook continues to be uncertain.

Trilogy of Demand Bolsters Corn Market

 

Bearish Story for Soybeans Without China

 

Mind Your Hidden Costs When Storing Grain

The ability to store grain adds flexibility to a marketing plan—but income can be jeopardized if hidden costs aren’t factored into the equation. Iowa State University Extension shares these storage costs:  

  • Interest on inventory: If grain is stored, interest expense continues on any loan. Even if no money is borrowed, there’s an interest cost of storing grain because the proceeds can’t be invested in the business or put in savings to earn an interest return.
  • Extra drying: Additional fuel and power is required to get corn moisture down to 13% to 13.5%.
  • Extra shrinkage: Because grain is sold on a weight basis, the removal of additional moisture from corn in storage also reduces the number of bushels. To compute the extra shrinkage for on-farm stored corn, use a shrink factor of 1.25%. Commercial elevators often use 1.35% to 1.4%. The extra shrink cost is calculated by multiplying the extra points of moisture removed times the shrink factor times the current corn price.
  • Aeration: To maintain quality, dry grain often requires aeration, which can cost from 0.2 to 0.3 of a cent per bushel.
  • Extra handling: Costs vary by the type of equipment and bin size and shape, but for most on-farm storage that ranges from 2¢ to 2.5¢ per bushel.
Cumulative Storage Costs for Corn

Procrastinating Isn’t the Answer

If you’re in the 57% of farmers who are storing grain unpriced in order to give the market and basis an opportunity to recover, you still need a plan to initiate sales.

Basically, farmers are deciding to do nothing for now, says Chip Flory, Farm Journal economist and host of “AgriTalk”  and “AgriTalk After the Bell.”

“That’s not always a bad decision, as long as you’re consciously not doing anything with the crop—and not simply procrastinating,” he says.

The recent trade momentum with Mexico, Canada and South Korea, and hopefully Japan and India soon, means many farmers are trying to wait out sluggish prices until they improve.

If you’re storing grain that has already been priced, it’s most likely because you’ve already sold the bushels for spring or summer 2019 deliver. Both corn and soybeans are structured to pay farmers to store on the farm—it’s called a “carry
market.” These sales might have been made a while ago and at higher levels, or at today’s prices. If made recently, though, be ready to reopen upside potential with either a long call option or long futures position.

What is your primary marketing strategy for 2018 grain?

 

 

Back to news


Comments

 
Spell Check

No comments have been posted to this News Article

Corn College TV Education Series

2014_Team_Shot_with_Logo

Get nearly 8 hours of educational video with Farm Journal's top agronomists. Produced in the field and neatly organized by topic, from spring prep to post-harvest. Order now!

Markets

Market Data provided by QTInfo.com
Brought to you by Beyer
Close