November 10, 2017
Expect large volumes of corn and soybean bushels to be stored unpriced after this fall’s harvest. In addition, some farmers face cash flow constraints that will require decisions for many of these unpriced bushels. So does storing unpriced corn and soybeans beyond harvest really pay?
Data was collected annually over 32 years by Bryce Knorr, senior grain market analyst with Farm Futures magazine. The study compared storage strategies to four different crop marketing tools. These results are expressed as the net profit and loss per bushel for corn and soybeans as compared to the cash price at a north-central Iowa terminal elevator at harvest, usually in early October.
For consistency, the stored corn and soybeans were always marketed in mid- to late June, about the time July options near expiration. This is the same period of time when July futures prices usually rally due to the uncertainty of the growing crop. The four different crop marketing tools used for comparison consisted of:
• storage hedge
• store, buy a July put option
• minimum price contract
• basis contract
Bushels sold at harvest are replaced with either July at-the-money call options (a minimum price contract) or long July futures (a basis contract).
Results for corn
Knorr used a handling and storage costs of 1 to 2 cents per bushel per month for on-farm storage and 2.5 to 5 cents per bushel per month for commercial storage. Interest for stored grain was charged at the prevailing operating and CCC loan rates. Brokerage commissions are figured at $100 per contract, or 2 cents per bushel. Options premiums reflect the July put and call options using the at-the-money strike price at harvest.
The net returns are reflected as the net profit and loss per bushel for corn and soybeans, as compared to the cash price at harvest. These bar charts designate 3 different timeframes:
• 1985 to 2016 (32 years)
• 2001 to 2016 (16 years)
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