Basis Prices

Farmers Face Budget Squeeze And Balance Sheet Challenges—Echoes Of A Decade Ago

Tue, 30 Dec 2025 21:12:38 GMT

If heading into 2026 feels a little like déjà vu, you’re picking up the same vibes Chris Barron, president and CEO of Iowa-based Ag View Solutions, is experiencing. He believes the next couple of years will echo the last big downturn farmers weathered a decade ago.

“It’s kind of scary that 2025, ’26 and ’27 look essentially like a repeat of 2015, ’16 and ’17,” Barron says. “If you remember that time frame and made it through, buckle down because I think we’re going there again.”

He says one of the clearest signals farmers are about to experience a repeat of a decade ago is based on the 2026 cost-of-production data from Ag View Solutions’ clients, who are based in 23 U.S. states and three Canadian provinces:

Soybeans: About $11.87 per bushel based on a 65-bu. average yield
Corn: About $4.69 per bushel (before basis) on a 223-bu. average, with many growers needing at least $4.85.

Some growers raising non-GMO seed beans or getting premium contracts can still make soybeans compete. But for many farms, soybeans are the weak link in the current economic cycle.

Right now, Ag View Solutions clients are expected to plant roughly 62% of their acres to corn and 38% to soybeans for 2026 — essentially the same as 2025. Barron says he doesn’t expect many acres to shift away from this mix to more soybeans “unless something really changes.”

Given current price relationships and crop insurance guarantees, Ag View Solutions data shows about a $50-per-acre advantage to corn over soybeans for the year ahead. Even if the dollars trend lower, he says corn often pencils out better because of gross revenue and risk management tools.

More Cost Pressures Heading Into 2026

It’s no secret production costs are increasing heading into the next season. Some of the key factors include:

Overhead costs (what Barron calls ‘”return to management”) for family and employee expenses, including phones, fuel and business-paid personal expenses, are up nearly 5%. After the past year or two of what Barron describes as hard belt-tightening, he says deferred spending is “snapping back” at higher levels.

Land rents are holding mostly steady, supported by higher property taxes and outside investor demand.

Interest expense is climbing as operating lines grow.

Fertilizer costs are a mixed bag. On corn, fertilizer costs are up about 7%, even though Barron believes most farms are staying with removal-rate applications. On soybeans, he says fertility costs will be lower, mainly because growers are putting less fertilizer on their bean acres and leaning harder on corn nutrients.

Machinery and equipment costs are also inching higher for the year ahead.

This Is Not A Repeat Of The 1980s

Despite the “red” many farmers will see on their spreadsheets in the year ahead, Barron says the current period is not a repeat of the 1980s farm crisis, for two key reasons:

Farmer equity is strong. Debt-to-asset ratios remain healthy for many U.S. growers, even if cash is tight.
Many farmer exits are voluntary. Today, many farmers are choosing to retire or scale back in order to protect equity.

Barron offers a recent example: “I got a call the other day on 7,000 acres, a 45-year-old farmer saying, ‘I’m not going to do this anymore. I’ve got a $5 million equity position, and I’m not going to go for a couple more years and chew away another million dollars. I’m just going to be done.’”

Strategies for the Current Climate

To survive — and potentially thrive — in this “repeat” cycle, Barron suggests focusing on these four areas in the year ahead:

Do the high-dollar work. Barron says the “$500-an-hour” work is crunching numbers in the farm office. “Know your true costs, stress-test budgets, analyze each profit center. A few hours spent with good numbers can be worth far more than another round in the tractor,” he says.
Protect yield. He advises against cutting seed, chemistry or other inputs that protect or enhance yield “just to save a few cents per bushel.”
Right-size your operation. Barron says some of the most successful turnarounds he’s seen with operations lately have come when farmers “right-sizes” — they’re doing less, but doing it better — instead of trying to be everything to everyone.
Use collaborative models. Barron says he is seeing more farmers share equipment and labor with their neighbors to spread fixed costs without extra capital.

Opportunity Will Still Knock

During a Top Producer podcast, Barron told Host Paul Neiffer that the tight times ahead will create new land-rent opportunities for some farmers who want to expand. What commonly happens when margins get tight is some farmers pull back, and that’s when expansion possibilities open up for others.

“We’ve had numerous clients call us about opportunities to rent land and not like in small amounts. When times are tight and when things aren’t good, that’s when these opportunities present themselves,” he says.

Barron’s message for those farmers in expansion mode: have your numbers, working capital and lender relationships in order now, so if the right block of ground comes available, you can move quickly and confidently on it.

If you’re interested in the ROI spreadsheet Barron’s team uses to analyze market trends, email cbarron@agviewsolutions.com .

Hear the complete discussion between Barron and Flory on Farm Journal TV . Also, you can listen to the Top Producer podcast discussion between Barron and Neiffer at the link below:

Farm Journal Survey Signals 2025 National Corn Yield Could Fall Short of 2024

Fri, 17 Oct 2025 17:53:50 GMT

The government shutdown and resulting absence of data from USDA has left a void in the volatile grain and oilseed markets. To fill the gap, Farm Journal conducted a survey to get an update on yields and harvest progress as well as other important topics on producers’ minds.

Based on more than 1,100 qualified responses from across the U.S., the biggest takeaway is that corn yields are estimated to be down compared with USDA’s September estimates in six of the seven Pro Farmer Crop Tour states. Due to disease pressure and dryness, the 2025 national corn yield could be lower than the 2024 average of 179.3 bu.

(Farm Journal)

As of mid-October, yields are steady or lower for 74% of the respondents across the Crop Tour states, a far cry from higher production estimates for each state in USDA’s September Crop Production Report, says Lane Akre, Pro Farmer economist. Traders and analysts saw production falling from the September USDA estimate of 186.7 bu. per acre to 185 bu., according to a pre-report poll from Bloomberg in early October. If production does shrink, as the Farm Journal survey indicates, the national average yield could fall to 178.5 bu. per acre.

When compared to 2024, the Farm Journal survey shows the biggest yield decline in the “I” states:

Illinois at 7%
Indiana at 4.6%
Iowa at 3.2%

On the other hand, Minnesota at 3.8% and South Dakota at 3.3% are seeing yields come in higher than last season.

Soybean Harvest Progress Well Ahead of Corn
Corn harvest progress is on par with other private estimates at 43% on Oct. 15.

(Farm Journal)

Soybean harvest is well ahead at 79% due to dry conditions.

“While we aren’t getting the weekly crop progress reports, they are still calling and the analyst average this week was 60%,” Akre says.

(Farm Journal)

Storage Issues Especially Challenging in Northern Plains
Just over a third of all respondents in Farm Journal’s survey noted storage concerns as many producers are opting to store grain rather than take it to market. Storage issues are more prevalent in the northern Plains, with 56% of producers in South Dakota saying they are facing issues.

(Farm Journal)

With China absent from the export market and soybean yields strong, basis levels in the northwestern Corn Belt have widened to levels not seen since the 2018 trade war. Storage piles are already stacking up at local elevators.

“We’re just a week into harvest and already seeing more piles than we have seen in years past,” says Kevin Deinert, a farmer from Mount Vernon, S.D. “If you look at total production and total storage capacity, we’re going to exceed our storage capacity by a considerable amount.”

Typically, farmers in the Dakotas sell soybeans right off the combine, but this year many are holding onto their crop, hoping for better prices down the road.

“The basis on corn is not great either, but it’s exceptionally bad on soybeans,” explains Todd Hanten of Goodwin, S.D. “I’m going to store it all and try to capture some better basis in the future.”

David Struck, a farmer from Wolsey, S.D., is also storing beans with the hope come January and February, he’ll be able to move them and get a better price.

Based on CoBank estimates, the nation will be short 73 million bushels of upright grain storage this year, a dramatic shift from last year’s surplus.

“When you pull out to the 12 major corn-producing states, and that includes soybeans, we’re going to be short by about 1.4 billion bushels of storage capacity,” says Tanner Ehmke, CoBank’s grain and oilseeds economist. “Last year, we were long by about 360 million bushels.”

Farmers Still Support Tariffs
Despite the ongoing trade war with China, which has weighed heavily on row-crop prices, more than 60% of respondents say they support tariffs. Many are hopeful that aggressive trade policies will pay dividends once it is all said and done.

(Farm Journal)

2018 All Over Again? Northwest Corn Belt Farmers Face Storage Crunch, Basis Collapse

Thu, 28 Aug 2025 16:46:31 GMT

Farmers in the northwestern Corn Belt are experiencing déjà vu. Harvest 2025 is starting to feel like 2018 all over again. The lack of export business has widened soybean basis in North Dakota, says Frayne Olson, crop economist and marketing specialist with North Dakota State University.

China, which takes 25% of all U.S. soybeans, is facing tariffs as high as 23%. As a result, Beijing has made no purchases of new crop soybeans .

“Current soybean basis levels are anywhere from -$1.35 to -$1.55,” Olson says. “During the peak of the last trade war between the U.S. and China, we were at a -$2 in many locations.”

North Dakota farmers depend on soybean exports to China, so they’re looking for a market for more than half of their 220 million bushel crop.

“We’ve been set up to ship through the Pacific Northwest to China. Right now, with that market shut down, 120 million bushels have to go somewhere,” explains Randy Martinson, Martinson Ag in Fargo, N.D.

Farmers Might Face Storage Crunch
With $8 cash soybean bids in the Dakotas and Minnesota, and no bids for fall in a few markets, farmers might need to break the norm and store soybeans.

“The incentives are now for farmers to store soybeans on-farm and try to push some of the corn through the system as quickly as possible,” Olson says. “Our challenge with that, of course, is harvest capacity.”

Farmers are scrambling to find storage and have limited options — with old crop still to move and capacity lost to storm damage in North Dakota.

Olson says their options will depend on harvest conditions and moisture content.

“If the corn is dry enough, I think there will be a lot to put into bags . There will probably be some we’re going to have to pile outside regardless, whether they’re farm storage piles or commercial storage piles,” he says.

Other Areas Also See Basis Weaken
Basis has also weakened in other areas of the Corn Belt, such as Kansas, where big crops are predicted and processors have backed off bids for corn and soybeans, says Mark Knight with Farmers Keeper Financial.

“You’re seeing some basis get wide. They expect a big crop coming, so there’s not a big supply fear out there right now. Why pay up?” Knight says.

Farmers might have to sell overflow bushels and look at buying the crop back on the board, he advises.

“They’re looking for ways to re-own — whether it’s through futures, options or storage themselves. I think most of the guys are going to get away from paying for commercial storage,” he explains.

With the storage crunch, commercial storage costs will likely be much higher this fall.

Follow These 3 Rules To Manage Commodity Market Uncertainty

Mon, 14 Apr 2025 17:28:04 GMT

Tariff action and trade tiffs have dominated the Trump administration’s first three months, creating one of the greatest periods of market uncertainty many of us have ever had to manage. It’s true what they say: Markets don’t like uncertainty.

For markets, certainty equals confidence. If participants are confident in the market’s trend, professional trading funds, for example, pile onto one side of the market with high certainty it’s the right decision.

When there’s uncertainty, or low confidence, traders and fund managers are less committed to positions. They are into a new position at the start of a session and out before the closing bell.

In times of uncertainty, it’s best to go back to the basics of risk management. Effective risk management has little room for mistakes, but that doesn’t mean it has to be perfect. It just means you follow the basic rules in selecting the right marketing tool to use at the right time.

Rule #1: Basis Matters

When basis is above the three-year-average, use marketing strategies that capture that basis strength with a cash sale for immediate or forward delivery. That includes a basis contract that sets basis but leaves price open.
When basis is below the three-year average, use marketing strategies that leave basis open. Those options range from doing nothing to a short position in futures as a hedge against downside price risk.

Rule #2: Price Matters

If you anticipate higher futures prices ahead, use strategies that leave price open.
If you anticipate lower futures prices ahead, use strategies that capture price.

Rule #3: Now Put Basis and Price Together

When basis is strong and you’re bearish on prices, capture basis and price. That’s a cash sale for immediate delivery. If you don’t have the bushels to move that’s a forward-cash contract for future delivery.
When basis is strong and you’re bullish on prices, capture basis and leave price open. A basis contract can work great in a scenario like this — so does a minimum price contract with cash sale covered by a long call option. Remember, the premium on a call option generally appreciates as futures prices rise.
When basis is weak and you’re bearish on prices, capture price but leave basis open. A short futures position against your grain in the bin or in the field captures price. When basis returns to normal or strong levels, make the cash sale and exit the short futures to capture basis. A put option will provide similar protection. The premium on a put option generally appreciates as futures prices fall.
When basis is weak and you’re bullish on prices, choose a strategy that leaves basis and price open. Simply put: do nothing, but make sure the decision to do nothing is reasonable.

Click here to stay up-to-date with commodity markets, prices and futures.

How Storage Added Over 70 Cents To My Bottom Line This Year

Mon, 20 May 2024 12:57:38 GMT

Why Storage Pays

In a previous article I shared when and why I set basis on my farm. That prompted several questions from farmers on the process I used.

For background, in 2023 I bought puts on much of my anticipated production. I also had some sales on and several options trades that gave me added profit. My final futures value was $5.54 against the December contract. This floor price was mostly set and secured by February 14 of 2023 as this chart shows:

That Seems Like a Lot of Work

A farmer asked me why I do all the work to hold grain after harvest if my floor value was $5.54 and futures at harvest were under $5?

The reason is that basis at harvest in southeast Nebraska picked up on my farm was trading -35 cents to the futures values as the chart below for October shipment shows:

That means, if I had sold my corn to be picked up at harvest, I would have received $5.19 cash value ($5.54 futures - .35 basis value).

Usually, the worst basis of the year is during harvest in October because many farmers don’t have enough home storage and need to move their grain to commercial facilities where space is limited. In my area -35 is common at harvest time. However, once harvest is over, it is very difficult for end users to get farmers interested in moving grain, especially if futures values are low.

As the chart above shows, shortly after harvest was over end users increased their basis bids to incentivize bushels to move.

Which Month Do You Sell Futures In?

Another farmer asked me if I make my sales against the December contract and then roll them forward to a future month. Or do I just pick the month I plan to sell grain in when I make my original sales.

Usually, I will pick the December contract because the spread to other months historically works in my favor as the year progresses. However, in some years market conditions indicate I should place the trades in the contract months I plan to move the grain earlier in the year.

Just like how futures and basis have their own market movements, so do the spreads. In some years, spreads will be widest in the spring and others it is in the fall. Last year, I waited until late fall and captured 37 cents of premium to store grain waiting for basis opportunities as shown in the chart below:

What About the Interest Cost?

I am often asked if I account for the added interest to store my corn that long?

The answer is it depends what I’m comparing. For someone holding unpriced grain in their bin until the day I set basis, then both trades have the same interest costs, and the issue isn’t relevant.

However, if I’m comparing my sales and storage price to someone who did not store their grain at harvest, then it’s extremely important to analyze the interest cost to store grain.

In October, the futures value for corn was averaging $4.95 and the basis was trading at -35. This means the corn in my bin had a $4.60 cash value. To calculate the interest cost to hold the grain, I took the $4.60 cash value of corn x 9% interest for a short-term operating note divided by 12 months. This gave me a 3.45 cent per month cost for storing grain instead of selling at harvest and lifting my hedges.

That means storing my corn in the bin for 7 months until May, instead of selling at harvest, cost me 24.15 cents (3.45 cents x 7 months).

Why Do You Use The $4.60 Cash Price and Not $5.19?

I use the current cash value because my hedge account will have already captured the profit from the decreased futures price of $5.54 futures I have sold to the $4.95 it was trading. I can take that profit out of the hedge account, if I want, and pay down any short-term loans I have. Also, by using cash it accounts for where basis values are and where I believe they might go as well.

What Was The Outcome?

In October, the spread as noted in the chart above, to move my sales from December to May was paying me 24 cents, which would have covered almost all my interest cost. However, I suspected the spread could move wider, considering the large harvest the US was having, so I waited until late November to move my sales from the December contract to the May contract. My hunch turned out to be correct, and I pocketed 37 cents to hold the grain until May, which more than covered the 24.15 cent interest cost to store the grain.

Basically, through market carry I am paid the equivalent of a 13.5% annualized return (37 cents / 7 months = 5.2 cents x 12 months = 63 cents / $4.60 = 13.5%). This means even with a 9% loan I made a 4.5% annualized profit using the bank’s money. And the bank was happy about making the loan. It was a win-win scenario for both of us.

I have heard that some people suggested that for those who didn’t have to borrow money, it would have been better to sell the grain at harvest and put that money into a CD for 5% interest. Clearly making 13.5% is significantly better than 5%.

Plus, these calculations don’t even include the basis appreciation profit from harvest to April. I made another 35 cents in profit from that portion of the trade, which is the equivalent of another 13% of annualized return.

In total, I collected 37 cents in market carry and 35 cents of basis appreciation for a total of 72 cents over 7 months. If I didn’t have a bin payment or operating note, it means I made the equivalent of a 26% annualized return on my investment over 7 months. And for the farmer who does have operating notes and bin payments the market would have paid for both this year.

Farmers can make a lot of additional profit through on-farm storage if they understand how the market encourages them to do so. With current corn prices where they are, it is more important than ever that farmers take advantage of these kinds of opportunities that can help them maximize their profit potential.

If you want to learn more about how to use on-farm storage to turn profits like this, reach out to me at jon@superiorfeed.com .

Want to read more by Jon Scheve?

Was The May USDA Report Bearish?

How I Used Storage and Risk Management Strategies to Get Nearly $6 for My 2023 Corn Crop

There Is A Cost To “Free” Storage

Is The US Tight On Corn Or Are Farmers Just Not Selling?

History Does Not Favor a Corn Rally in April

How I Used Storage and Risk Management Strategies to Get Nearly $6 for My 2023 Corn Crop

Mon, 06 May 2024 20:11:47 GMT

Market Commentary for 5/3/24

Delays in planting across parts of the Corn Belt sparked a corn rally last week. If a large portion of the crop isn’t planted over the next two weeks, futures could continue to rise. However, if there seems to be enough opportunity for farmers to make significant progress in planting, then the market will likely pull back.

Market Action – Setting Corn Basis on the 2023 Crop

I have 100% storage capacity for all my crop production on my farm. This helps with harvest logistics and allows me to maximize profitability from more basis opportunities and market carry.

Within 60 miles from my farm, there are two ethanol plants, six feed mills, and four rail shuttle loaders. Since I never know which location will have the best bid each year after harvest, HTA (Hedge To Arrive) contracts are never a profitable option. Usually, I can even get a premium to what my local markets are bidding, if I sell my corn picked up on the farm and let someone else haul it away, which can sometimes be up to 500 miles. I get these premiums by being flexible, using futures to hedge and storing all my grain at home.

This year on April 2 I set basis on my entire corn crop at 0 against the May contract for April shipment. This is shown on the chart below:

The green lines represent the three best bids available in my area. Note, the commercial freight rates to move the grain to each location are subtracted from each bid, so I can compare all bids equally picked up on my farm.

This year the best bid was for the grain to be picked up on my farm and hauled outside of my immediate area. I don’t know where it’s going, and I won’t be hauling it. All I have to do is load the trucks when they come.

The basis value I received was the best I saw for the year. While the chart does show a bid for 5 cents higher in November that was only available from one buyer for a five-day shipping window over Thanksgiving weekend. I couldn’t find a truck to haul during that time period. Plus, I didn’t want to set my basis in November because the bid was against December futures, and I planned to have my sales set against May futures.

Why Does That Matter?

The spread between futures contracts is how the market pays for someone to hold the grain until it is needed. At the end of November, the spread was increasing a lot because the market had too much corn that needed to be priced from all the harvest delivery.

This chart shows how quickly the spread increased to incentivize more grain shipment later in the marketing year.

I moved my hedges from the December contract to the May because at the end of November I could collect 37 cents to basically store my grain until April or May.

Did You Have to Set Your Basis in April, Or Could You Have Waited Longer?

I could have waited longer, or even rolled my hedges from May to July, hoping for better basis values in the summer and collecting even more for storing it.

Why Didn’t You Wait?

I was able to procure a bid of 0 basis, picked up on my farm, which was 10 cents better than any other bid in the area. A 0 basis, picked up on my farm, was also my goal for the year and it fell within the ideal timeframe I had set for myself to set basis over the winter.

Plus, I knew a lot of farmers still had unpriced corn in their bins. This meant any futures rally would likely be met with farmers selling cash corn. An increase in cash corn sales would likely mean end users would start lowering the basis. And even if basis did manage to go higher for some reason, I wasn’t sure the increased value would be enough to offset my monthly interest cost to wait longer.

I won’t know until mid-summer if I made the right decision, but I’m happy my goal was hit, and I’m finished marketing the 2023 corn crop.

Where Does This Leave Your Final Price?

Between my futures sales and my options strategies, I had a $5.54 December futures value. I then collected an additional 37 cents when I rolled the hedges from December to May, which gave me the equivalent of a $5.90 May futures value after all commissions. With a 0 basis value on my farm in southeast Nebraska, my final cash value for all my 2023 corn is $5.90.

Obviously with cash corn in my area trading near $4.50 right now, I’m extremely happy with my final 2023 corn price.

If you would like to understand more about how to protect downside risk and use storage to increase profits for your operation, please reach out to me at jon@superiorfeed.com .

Want to read more by Jon Scheve?

There Is A Cost To “Free” Storage

Is The US Tight On Corn Or Are Farmers Just Not Selling?

History Does Not Favor a Corn Rally in April

Was The Report Actually Bullish?

How Much More Can Corn Rally?

There Is A Cost To "Free" Storage

Sun, 28 Apr 2024 16:12:01 GMT

Market Commentary for 4/26/24

Last week I mentioned that the basis and spreads between futures contracts suggested the market wanted grain now and not later.

That prompted a question from a farmer who asked what they should do with the grain still in the bin. They told me they weren’t happy with the flat price value of grain, but they had time to move their grain while it was raining. They wanted to know if they should take advantage of free storage programs that their end user in their area was giving them and move their grain now.

I told them that if it were me, I would ABSOLUTELY NOT do that.

Why?

The whole reason the basis is improving, and the spread is narrowing, is because end users can’t get corn into their facility. Delivering corn into “free” storage programs only helps end users procure bushels when they are desperate. These free storage programs hurt all farmers by artificially lowering prices when they should be strong.

There Is a Cost To “Free” Storage

If you don’t believe me, compare the basis value bids of a facility offering or has offered free storage this season. When I analyzed different facilities throughout the US this past week, I found that their immediate delivery bids were at least 5 to 10 cents lower than their bids for next month’s delivery. This is the true hidden cost of “free” storage.

For farmers raising 200 bushels per acre, this “free storage” costs them up to $20 per acre at 10 cents per bushel. For farmers with 500 acres of corn, “free” storage is potentially costing them up to $10,000 this year.

I have written about why farmers shouldn’t participate in these programs before. A lot of farmers reached out to me after those sharing their frustration with the farmers who use these free storage programs. Several mentioned they even explained how these programs hurt all farmers to their friends and neighbors who use the programs. Sadly, most of these farmers said the farmers they spoke with just don’t care.

While this is frustrating to hear, I would encourage everyone to keep talking about how these programs are bad for farmers. If we could all work together to stop using these programs, maybe all farmers could be getting better prices. With breakevens not going down as quickly as corn prices are going down, we all need to be adding every 5 to 10 cents profit to our bottom line that we can.

If you would like to discuss the options available to you with your remaining stored grain, please reach out to me at jon@superiorfeed.com .

Want to read more by Jon Scheve?

Check out recent articles:

Is The US Tight On Corn Or Are Farmers Just Not Selling?

History Does Not Favor a Corn Rally in April

Was The Report Actually Bullish?

How Much More Can Corn Rally?

Crop Insurance Is Not An Effective Marketing Tool

Preventing The Use Of “FREE” Storage

Tue, 06 Feb 2024 16:15:06 GMT

Market Commentary for 1/26/24

Preventing The Use Of “FREE” Storage

Once again “free” storage is being advertised throughout the corn belt. While some also call it “price later opportunities,” “delayed pricing” or “DP” it refers to when farmers sign over their grain to an end user or commercial facility, and then wait to price the grain later, hopefully at higher values.

On the surface, “free” storage seems like a win-win for farmers and end users or buyers. These “free” storage programs are a great way for end users to procure grain supply during the winter. And farmers can move their grain now when they are not busy, and price later during a potential rally. Unfortunately, “free” storage ends up costing ALL farmers, those using it and those that do not.

Why Does “Free” Storage Hurt All Farmers?

When end users offer this program, it is usually because they are having difficulty procuring enough grain to meet their immediate needs. Typically, “free” storage offerings spur a rush of quick ship grain and helps end users get through a month or two of difficult origination. However, this ultimately keeps basis prices artificially lower than the bids end users should be willing to pay for grain right now. In other words, why would end users push their basis bids up when they are getting plenty of grain delivered?

How Much Are Prices Impacted?

Basis level suppression from “free” storage could be 10-20 cents in an average year, but it might run higher depending on local conditions. For example, two years ago there were production issues in central Missouri and North Dakota, and basis values after harvest in those areas were 50 cents higher than normal. Similarly, in the previous year the southwestern part of the corn belt experienced a lot of dry weather, and basis values there were $1 per bushel higher than normal.

Why Do Basis Levels Fluctuate So Much?

Basis usually goes up when farmers quit selling because they either run out of grain to sell or they think prices will go higher and hold their grain. Therefore, end users need to incentivize grain movement and sales to their facility by increasing basis. Conversely, end users will then decrease basis bids when there is plenty of supply available.

This means when farmers are not using “free” storage programs, end users need to increase basis values to entice farmers or commercial facilities to move grain. Those higher bids mean increased prices for ALL farmers in that area and potentially the surrounding areas.

But “Free” Storage Offers Several Conveniences to Farmers

True, some farmers argue that with “free” storage they do not have to worry about their grain’s condition in the bin or when to move it. Plus, they get the flexibility of being able to sell at potentially higher prices down the road.

Again, these conveniences seem good on the surface, but the farmer has limited their pricing opportunities. These farmers are now committed to the prices the end user is offering, and that usually means current month basis bids that run at lower values than forward bids. This “forced” discounted price is part of the cost for the “free” storage.

Another problem with “free” storage is that when farmers place a sell order on their “free” stored grain, it is usually for a cash price sale. This allows end users to know the price many farmers are willing to sell at, because they can see all the pricing orders that are placed. If many farmers pick the same general price point to sell, end users can fade their basis bids back as that cash price point approaches. This basis fade may only be 2-5 cents, but the “free” storage program just cost farmers in that area a little more money.

Just A Few Farmers Using “Free” Storage Hurts All Farmers

It only takes about 20% of farmers in an area to commit 50% of their production to “free” storage for end users to procure about a month’s worth of needed production. This can bridge end users until the next round of farmer selling, often right before planting season, and suppress prices for all farmers locally. Plus, these lower basis values can trickle beyond the surrounding area and impact farmers in markets further away.

Nothing Is Ever “Free”

In grain marketing there seems to always be hidden costs. And, for “free” storage programs the hidden costs hurt ALL farmers not just the ones that participate.

So, encourage your neighbors to not use “free” storage. Following is a list of what to mention:

End users likely offer it because it is beneficial to them, not the farmer
No end user would offer something for free if it did not profit them in some way
“Free” storage users likely contribute not only to price suppression for themselves, but all farmers in the area
Using “free” storage means a farmer will likely be locked into using an end user who knows what price farmers are willing to sell their grain, and could artificially lower prices
The minor conveniences come at likely a huge cost to both them and YOU

Remember only YOU can prevent the spread of “free” storage.

If you would like to learn how you can avoid using “free” storage or delayed pricing and still maximize your profit potential, reach out to me at jon@superiorfeed.com .

Want to read more by Jon Scheve? Check out recent articles:

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