As farmers wrap up their work in the fields, it’s time to start making marketing decisions. One decision farmers will consider is whether or not to store their crops. Storing crops following harvest can help farmers manage their incomes, avoid seasonally low prices, and have more control over harvest operations. CoBank’s Tanner Ehmke said looking at the future market, there are some incentives for farmers to store their crops.
“Look at the difference between the December corn contract on the future of CME versus the March corn contract. There is a carry in the marketplace that is well above the cost of carry and the interest rate that the farmer has to pay on his operating loan,” said Ehmke. “Right now, that carry is quite substantial so the market is saying, don’t sell your corn now. Put it in the bin and sell it later.”
Just as there are advantages to storing grain, there are also disadvantages. When storing grain, extra handling is required, farmers risk spoilage, and weather can interfere with delivery. Stephen Nicholson with Rabo AgriFinance added that while there could be $5 corn down the road, it might not be the most cost-effective solution.
“Understand what the cost is to do that. It may be cheaper for you to sell it now, take the money, and put it in the money market for 5% than it is to hold on to it, worry about shrinkage and quality issues,” said Nicholson. “But understand your carrying costs, and then execute against that. Do not just assume that if you hold it till March, that price is going to be there.”
When it comes to making storage decisions as part of a marketing strategy, it’s important to look at best practices for the operation.
Click here to listen to more of Tanner Ehmke’s market outlook.
For more from Stephen Nicholson’s interview, click here.
