Written by Britany Seda of GrainBridge and Grain PhD
In an environment of trade uncertainty and wide basis levels, the 2018 harvest resulted in many farmers storing more grain. Even farmers who typically don’t bag grain or use commercial storage did so this past fall. If you reacted similarly, it’s important not to shut the bin or turn your back on commercially stored bushels and forget about marketing. In order to ensure your choice to store has a positive impact on your bottom line versus selling at harvest, you need a plan.
The first thing to consider and calculate is the cost associated with storing grain that eats into the profit from price appreciation. With commercial storage there is, of course, the monthly storage charge, but have you considered the cost of interest due to extending the amount of time you’re without access to the cash from the sale of your grain?
With on-farm storage, the costs are less explicit than they are with commercial storage, but they hit your pocketbook just the same. On-farm storage costs include the following:
- Grain quality
- Drying costs
- Bin management
- Freight and handling
- Interest associated with not having access to the cash from the sale of the crop
The following article from Iowa State University’s extension provides an explanation of each of these costs: https://www.extension.iastate.edu/agdm/crops/html/a2-33.html
Bottom line: Know what price you could have sold your stored grain off the combine to establish your baseline, and be sure to update your GrainBridge account so you can aim for an accurate breakeven or target profit goal. Thankfully, there’s no need to reinvent the wheel when it comes to calculating the cost of storage, and knowing the price you need to truly increase your income from storing grain. Instead, follow along with us on the example below which demonstrates how to accurately establish the price needed in each delivery period you plan to sell/move grain in order to meet your breakeven or target profit goal. To download and customize an excel spreadsheet that helps you calculate the cost of storage on your own farm, please visit https://www.extension.iastate.edu/agdm/crops/html/a2-33.html
Example Storage Situation:
At harvest, the cash price I could have sold corn for off the combine was $3.35. Since my breakeven is $3.60, I decided to store grain in hopes that the cash price would rally enough in the following months to meet or exceed my breakeven price.
Let’s walk through it:
- My 100,000 bushels of corn in storage is split evenly between on-farm storage and storage at my local co-op.
- I outlined the months and quantity of bushels I plan to move/sell in each month. For cash flow purposes, I plan to sell 50,000 bushels in both March and July.
- To accurately estimate the cost of storing grain, I customized the spreadsheet from Iowa State Extension with the numbers specific to my farm. From there, I changed the number of months for ‘Length of Storage’ in the spreadsheet. This allowed me to establish the prices I need for sales in March and July that would be equivalent to having sold at $3.35 at harvest. I also take into account the additional $0.25 that was needed at harvest to meet my breakeven.
- In this case, to meet my breakeven goal when I sell in March, I need to be targeting $3.97 cash for my on-farm stored bushels and $3.88 cash for my commercially stored bushels.
- By July, commercial storage becomes more expensive than storing on farm, so the price needed to reach my breakeven goal is $4.13. For my on-farm stored bushels, I would need $4.04 cash to breakeven if I store until July.
- Since I have both on-farm and commercial storage, the evaluation helped me understand that commercial storage is cheaper in the short-term (March), but on-farm storage is the cheaper storage option when holding corn to July. Thus, I should be looking to price my co-op stored bushels first and plan to keep my on-farm stored bushels until July.
- From this quick analysis, I now have specific price targets to look for. I also know with certainty what those prices mean for my bottom line.
Take the time to evaluate your storage costs and establish price targets so those extra stored bushels have the biggest impact on your bottom line that they can this year.
Market Update from Scott Harms
The corn market is poised to have a positive first quarter of 2019 as the lofty demand expectations and declining production ideas could provide necessary price support. Corn exports are expected to pick up this winter until new South American production is available to the world market. Producers should look to stretch their comfort level on new crop corn pricing as values approach the upper end of value at $4.20 basis December 19 futures. Corn acreage is expected to aggressively expand in 2019. Proactive sales made this winter can ease some of those emotions if the market were to decline into the March Planting Intentions Report as well as potentially favorable early growing conditions. Sales made early can be protected with corn call options on a Spring price decline. This will re-open the upside ahead of any potential summer weather issue. Grain marketing can be an emotional exercise. You can manage some of those emotions with a solid marketing plan.
The information conveyed by ADMIS or its affiliates to the audience is intended to be instructional and is not intended to direct marketing, hedging or pricing strategy or to guaranty or predict future events, including the pricing and pricing movements of commodities and commodity futures contracts.