Break Down Bin Utility

October 10, 2017 06:53 PM
 
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Q: Farmers are gearing up for harvest and soon are going to be faced with storage decisions. Can you share your thoughts on whether corn or soybeans would best utilized in storage? In addition, could you share your price expectations for the last quarter of the year and if you see a scenario in which corn or soybeans revisit their summer highs? 

Evaluate Basis Trends Before Storing Grain

Mark Gold, Managing Partner, Top Third Ag Marketing

Mark Gold

Once again this year, farmers have had opportunities to market crops at profitable levels. But unfortunately, many producers let those opportunities fade away. Now, at harvest, those farmers who have not marketed ahead of time must decide whether to store the grain or to sell it.

There is carry in both corn and soybeans that will pay for most of the storage costs. The question becomes: Do you expect basis to increase over time? If the answer is yes, then I would store the grain and own an inexpensive put option to protect the flat price.

What’s critical here is that you actually capture the carry by selling the deferred contracts. Too many farmers stick grain in the bin looking for basis improvement and don’t price the grain on a deferred contract. Unfortunately, too many times the carry bleeds out of the market.

The other strategy would be to sell the grain and buy a call option to keep the upside open. You can reduce the risk of storing the grain and still have the upside open to you in the market.

The final production results could be lower than most expect because of this summer’s hurricanes and variable weather. In addition, I expect export demand to increase because of the very weak U.S. dollar.

Contact Mark: mgold@topthird.com

Hold Onto Soybeans Amid Carryout Unknowns

Kevin Duling, Founder, KD Investors

Kevin Duling

Nothing beats actual harvest results to aid in decisions for storage. But as of this writing, I have to tip my hat to soybeans if a choice is required. We know each year USDA frontloads soybean carryout estimates that decrease through the marketing year. They will overshoot anywhere from 25% to 38%.

Given clientele chatter, crop tours and weather patterns, I can see potential disappointment in yields for both corn and soybeans, but less room exists for error in soybeans. In light of China’s insatiable demand for soybeans, I like the longer-term outlook better, but corn harvest basis is an issue.

Should prices begin to show strength after you liquidate the product, it is far easier to own corn on the board versus soybeans—at least, it is easier on the stomach and margin account.

As weather became unfavorable, June prices spiked. Minneapolis wheat and corn led the way. Before the price increase, hedge funds had acquired large short positions in all grains. We are starting to see a similar situation. With spring-wheat harvest pressure over and corn about to start, any disappointment in yield will cause a similar move. We can’t forget the dollar as it hits on fresh three-year lows.

Contact Kevin: kdinvestors@gmail.com

 

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