To store or not to store: Considering grain storage in tight economy

grain storage bin
(Chris Kick photo)

SALEM, Ohio — As harvest season winds down for most Ohio and Pennsylvania producers, it’s no secret that farmers have been less than pleased with commodity prices this year.

At this point, many producers are well into, or finishing up, harvest and have most likely made some decisions on grain storage or outright selling. But some producers may still be deciding whether to sell the crop or store it and wait it out for a better price in the coming months.

Every farm operation is different and has different factors to take into consideration when it comes to storing or selling grain. So what should you do? Answering like a true agricultural economist, Jim Dunn of Penn State University said, “it all depends.”

“You just have to work out the math and see if it’s worthwhile to pay an elevator to store your grain or store it yourself,” said Dunn.

Crop conditions

Soybean numbers are at a more profitable level and, because of this, more farmers are selling their beans instead of storing them, said Jenifer Pemberton, grain merchandiser at Deerfield Farms Service Inc. in Deerfield, Ohio.

Corn, on the other hand, is a tough one, she explained, with prices below the cost of production to break even. Northeastern Ohio farmers are facing some diversity as far as crop conditions go. “Farmers north of Interstate 80 are having a better crop and may have more bushels,” she said. “So the lower price isn’t as huge of a factor.”

On the flip side, she said producers south of the I-80 line are experiencing poorer crop conditions and lower crop yields. In some case, many of the farmers Pemberton has talked to say they just want to sell it and move on, and hope for better prices in the coming year.

The cost of storing grain

But if you are considering storage, one of the biggest factors to consider is the cost of storing that grain. Scott Anderson, a former wall street investment banker who offers precision grain marketing management tools to farmers, shared a column, 5 Tips to Decide Whether or Not to Store Grain, on his Cash Cow Farmer Blog

“The co-op is probably the most expensive option, usually anywhere from 3-7 cents per bushel a month,” said Anderson in his column. If the farmer is considering storing and waiting for a better price in July, for example, that’s roughly 35 cents per bushel in storage costs lost, he said.

In a state like Pennsylvania, where livestock are more abundant than corn and soybeans, grain storage tends to be a bit cheaper. “We don’t have the grain elevators like the Corn Belt,” said Dunn, so the few elevators and feed mills in central Pennsylvania are often looking for that extra grain to store.

He suggested in a year like this year, when crop yields are low, “it is really worthwhile to have storage because you are going to get paid pretty well to store it.” It is also worthwhile to have on-farm storage facilities “because of your time during the busy part of the year — storing yourself versus waiting in line at the elevator,” said Dunn.

But, there are also risks in on-farm storage of grain. It may not be reflected in a flat rate, but may be reflected in the loss of grain due to mold, a hot spot getting into the bin, running fans, or damage from loading and unloading grain, said Anderson.

Check the basis

Looking at the basis during harvest is another key consideration for grain storage. Anderson suggests looking at your farm’s basis for each commodity and determining, based on the average of the past five years, where your farm is at on basis.

Basis is the difference between the current local cash price and the futures price of the contract with the closest delivery month. For example, corn basis in February is usually defined as the difference between the current cash price and the current March futures price, according to Iowa State University Extension.

“The main purpose of storing grain is to take advantage of an improved basis later on in the year,” he said. But farmers also need to consider the cost of loading and unloading bins, plus storage costs. A huge harvest in the area will bring the basis down, but if the harvest isn’t great, due to drought or other poor conditions, the farmer may want to consider selling.

“We are dealing with record crops (this year),” said Mike Myers, grain marketing manager for Sunrise Cooperative in Fremont, Ohio. “We feel the basis is going to get better in the Eastern Corn Belt,” he said, but for now it’s hard to tell if a market rally is in the near future.

In contrast, Dunn expects the harvest prices to be “pretty good (in central Pennsylvania) because of the low crop.” Dunn said drought inflicted most of central Pennsylvania, causing crop conditions and yield to be poor.

Contracting grain

Deferred contracts are any contracts after harvest and before next year’s harvest, explained Anderson. “Most people are going to be looking at July for corn versus December,” he said, sharing an example of the cost of storing for a slightly better price.

If the December contract is trading at $3.30 and the July contract is trading at $3.50, that’s 20 cents in holding the grain for six months. Add on top of that, the cost of storage and the potential basis movement, he said. “It doesn’t make sense to store if there’s no carry in the market, and you want to take advantage of that carry when it’s big,” said Anderson.

“Somebody who can store grain and understand hedge” is going to do all right storing grain, said Myers. “But not a lot of folks are that astute in marketing.”

Cash flow

At the end of the day, an important question to ask yourself is, “Do I have enough cash on hand for my current cash flow needs?” Anderson points out that as harvest season comes to a close, prepayments for 2017 seed will be due.

Make sure to have cash on hand in the fall to cover any debt payments and availability to a line of credit (or cash) to prepay for seed, explained Anderson, noting that paying in advance can lead to some deep discounts.

Wrapping it up

“Don’t put all your eggs in one basket,” said Pemberton, who suggested spreading out the risk by selling a little, storing a little and doing some forward contracting. Farmers may also be able to cash in on crop insurance to make up for any loss in yields this year.

“Nobody is in the (farming) business to get rich quick,” said Pemberton. “It’s all about managing risk and seeing where you can make some money.”

The USDA crop progress report

For Ohio and Pennsylvania, week ending Oct. 23:

  • Ohio corn is 49 percent harvested compared to a five-year average of 41 percent harvested at this time.
  • Pennsylvania corn is 50 percent harvested compared to a five-year average of 47 percent harvested at this time.
  • Ohio soybeans are 79 percent harvested compared to a five-year average of 64 percent.
  • Nationally, corn is 61 percent harvested compared to a five-year average of 62 percent.
  • Nationally, soybeans are 76 percent harvested even with the five-year average.

Crop condition ratings are from the Oct. 17 report:

  • Corn condition for Ohio was rated 7 percent very poor, 14 percent poor, 33 percent fair, 41 percent good, and 5 percent excellent.
  • Corn condition for Pennsylvania was rated 7 percent very poor, 13 percent poor, 34 percent fair, 38 percent good, and 8 percent excellent.
  • Soybean condition for Ohio was rated 2 percent very poor, 7 percent poor, 28 percent fair, 51 percent good, and 12 percent excellent.

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