Each month in Wallaces Farmer magazine, the Timely Tips panel answers questions sent by readers. Members of the Timely Tips panel are Alejandro Plastina, Wendong Zhang, Extension economists, Iowa State University; Leslie Miller, Iowa State Savings Bank, Knoxville; and Rob Stout, Master Farmer, Washington, Iowa.

Dad and I farm together. He prefers to use the grain marketing contracts our local elevators offer. I’m not convinced they are as good as he thinks they are. How should grain marketing contracts be evaluated?

Stout: If you have your own storage, there are several options for marketing your grain. If you store your grain at the local elevator, then your option is to sell to them, evaluating the carry in the price to future months to the cost of the storage plus interest. If you are in a location with several options, then you can check more than one market, comparing the prices they offer for months in advance. 

You can hedge on the futures market, but that still has to be turned into a cash bid at some point in the future, which is futures price minus the basis to your bin. If you have a narrow basis, you could also do a basis contract, which would give you a set amount under the futures contract.

As I write this, the basis is still wider than normal for this time of year. When there is carry in the market, it pays to sell ahead, as long as the carry is more than the cost of carrying the crop. Spring is usually a good time to sell for fall delivery, as long as we get that usual planting time rally, so keep an eye on fall delivery prices this spring for marketing opportunities.

Miller: There is more than one way to forward-sell your crop — and often a mixture of techniques gives you the best results. 

I go back to a simple adage shared with me a long time ago: Forward-contracting is the simplest and cheapest thing to do, but it does require you to physically deliver your grain to a specific location. So, you should probably only forward-contract “the bottom third” of your production when the price is above your breakeven and the basis is reasonable. (It would be very unusual to lose over two-thirds of your crop.) 

Use options to lock in a price floor on the top third of your production because that is the portion of your crop that is most susceptible to disappearing when weather is bad. Options are best used to help you lock in a profitable price when the local basis is still too wide. For the middle third of your production, you could probably leave it unpriced because even the lowest level of revenue insurance will protect prices on this portion. 

Zhang: The past few years have definitely further elevated the importance of developing proper grain marketing strategies. ISU Extension has several resources at Ag Decision Maker, in particular from colleagues Chad Hart and Steve Johnson. They developed a series of videos called Crop Marketing 101. I especially encourage you check out the video on how to use a crop marketing matrix based on your expectation for futures prices and basis to determine appropriate strategies and tools. 

For example, when you expect futures prices going up and basis weakening, using a basis contract, selling cash bushels, and buying futures or a call option would be a good strategy. 

If you haven’t done so, I also encourage you to stop and visit with one of the eight ISU Extension farm management field specialists, who could evaluate your situation and offer more specific advice. Lastly, it is important to take advantage of preharvest marketing tools whether this is coming from your local elevators or not, because there tends to be a spring rally in prices now through June.

Fix or replace this combine?

We have a 10-year-old combine and harvest 2,800 acres each year. We were going to trade two years ago, but slim profit margins for corn and soybeans changed our minds. The farm financial picture isn’t any better now, but we put $12,500 in repairs into this combine in 2018 and lost three days during harvest while it was getting repaired. Should we push the pencil harder and look for an upgrade, or should we consider leasing a new machine?

Stout: My opinion would be that with 2,800 acres, you would be better off owning your own machine. Repairs and lost time during harvest would lead me to believe it might be a good time to look into upgrading your combine. There should be good prices on late-model used machines, where you can trade up to a newer, better combine with a lot less hours with potentially less repairs.

You can run the numbers on a lease, with the average hours you put on yearly, but I think you would be better off with ownership. Last fall, I went from a 12-year-old machine to a 5-year-old machine for what I thought was a reasonable difference in cost.

Miller: It is always frustrating to get shut down for repairs during harvest or planting. Sadly, buying or trading up for a newer machine does not guarantee that you won’t have breakdowns again. Your repairs cost you $4.46 per acre last year, which is not terrible. However, you have put a lot of acres through your machine, so it may be time to trade up. Better fuel efficiency and newer heads harvesting a few extra bushels per acre might offset some of the cost. 

However, you could easily spend $15 to $20 per acre on your newer combine payment. Yes, you get depreciation, but do you have the cash flow capacity to handle another payment? If so, have the dealer work up an estimate for buying vs. leasing. Remember that with leasing, you are giving up your equity in your old machine. Make sure to include that lost equity as part of the leasing cost.