By Jon Scheve, Superior Feed Ingredients, LLC
Currently the corn harvest is about 13% 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 today’s cash value of each crop, multiply it by my operating note interest rate, and then divide by 12 months.
• Cash value assumed: $6.75
• Multiply 6% Interest rate
• Divide by 12 months
• 3.3 cents cost per month to store
• 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.
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.
After working with many farmer clients one on one throughout the U.S., 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.
Please email firstname.lastname@example.org with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.
Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results.