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Market Commentary for 9/23/22
Currently the corn harvest is about 10% complete nationally. As the new crop crosses the scale, the futures market likely adjusts based on how many farmers are selling. Early indications suggest landowners on share crop and farmers with limited storage capacity could be satisfied with prices around $7 and will likely move forward with spot sales. As harvest continues this trend could intensify and push prices lower.
Also, as harvest continues throughout the Midwest, basis values are coming under pressure. There may still be some short-term opportunities where harvest is not as far along yet, but those basis bids will fade fast over the next 10 days.
What To Store, Corn or Beans?
Every year as harvest starts farmers ask me which crop should be stored if they do not have 100% on farm storage.
Analyze Interest Cost by Crop
The first step to maximize profitability is to analyze the cost per bushel per month to store each crop. To do that, I take todays cash value of each crop, multiply it by my operating note interest rate, and then divide by 12 months.
- Corn
- Cash value assumed: $6.75
- Multiply 6% Interest rate
- Divide by 12 months
- 3.3 cents cost per month to store
- Beans
- Cash value assumed: $14.25
- Multiply 6% Interest rate
- Divide by 12 months
- 7.1 cents cost per month to store
This shows the interest cost alone to store corn is about 4 cents less per month compared to beans.
Note: if I was in this situation, I would not necessarily just sell my crop outright. However, I would want to avoid paying commercial storage and minimize my interest payments as soon as possible. Therefore, I would sell the physical grain and use some type of re-ownership program through futures or options.
Storage Costs
If we assume a 0.5% shrink for both crops in storage, corn will have another 4-cent advantage over beans mostly due to the price difference between the crops. Also, the same sized bin on the farm can hold 10% more corn bushels than beans, due to the weight difference between the crops.
Analyzing Basis Upside Potential
Looking forward after harvest, upside potential for basis should also be considered and will vary throughout the country based on location, timing, and the type of grain buyers available in the area.
Futures Is Not a Consideration
The upside, or even downside, potential for futures is NOT a consideration when determining which crop to store because either grain can be re-owned with futures or options.
Bottomline
After working with many farmer clients one on one throughout the US, and assessing their specific needs, I find that most times it is more beneficial for farmers without 100% on-farm storage to move their beans at harvest and store their corn.
Want to read more by Jon Scheve? Check out recent articles:
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If Yields Are As Low As The Pro Farmer Tour Indicates Then $9 Corn Is A Possibility
Corn Basis Is Imploding Around The Country
The Corn Market Has Upside Potential And Depending On Weather Beans Could Still Be Explosive
Having A Risk Management Strategy Makes Big Market Drops Easier To Handle
Jon Scheve
Superior Feed Ingredients, LLC
