Should free storage programs be used now?

By Jon Scheve, Superior Feed Ingredients, LLC 

Last week, basis and the spreads between futures contracts suggested that 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 U.S. 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.

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, Neb. 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.

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