Successfully Managing On-Farm Storage

Heather Moffatt, Grain Risk Management Advisor, Agricultural Marketing First

The grain market maintained its volatility and counter-seasonal price gyrations since last fall. Grain movement to date has remained strong as world and domestic grain stocks are anticipated to remain tight. The upcoming fight for corn, soybean and wheat acres around the world are the rationale behind price strength. Uncertainty of world production as we go forward has created strong support beneath commodity prices. Continually, we ponder price potential and now the “weather season” is upon us. We pay particularly close attention to the arguments of the bulls and the bears for eventual price strength or deterioration. Confusion surrounding grain marketing decisions tends to become heightened as we watch weekly crop condition reports knowing the crop is vulnerable to weather problems. Even though prices have maintained historical price strength, deciding on the time to “pull the trigger” has not become any easier.

Looking back, hence learning from past success and mistakes is easy. More important is the ability to chart a plan for the future. Although prices could maintain a premium as the marketing year unfolds based on strong demand for grains, planning ahead is just as important as other years. On-farm storage capacity has been on the increase over the last few years. On-farm storage has always presented growers with
flexibility, but the advantages continue to grow. Selling grain into the future, taking advantage of higher deferred prices, has always been important in diversifying sales. It enables you to collect payment for holding grain for a specified period of time with no downside risk. Consider your grain as money. Calculate the interest you would collect on that money over the time frame you’re holding the grain. Selling grain for future shipment also allows you to generate known cash flow over the upcoming year. You can forward sell, factoring what time of
the year cash flow is needed. When rewarding a rally with old crop corn, remember to explore harvest values, December shipment and March shipment. What is my cost to carry grain from harvest to those time frames? What is my profit margin? Do I want to buy call options to maintain future upside potential after the sale? Diversify by selling grain periodically during the marketing year, as well as forward out of your bin.

Grain demand and movement are continually changing. Local markets for corn have always existed and will increase as ethanol plants are completed. Having onfarm storage will enable producers to benefit from this shift. Corn basis is strongly influenced by supply flow to the
marketplace and Michigan basis levels. Onfarm storage allows producers to take advantage of a short-term need for corn (basis strength) when supplies are needed. At harvest, large volumes of grain come to the market, creating a buyer’s market. Unless there is a short crop, harvest basis levels are most often the worst. Storing grain in your bins can allow shipments off of peak delivery time.

Advantages of farm storage are numerous. At the same time storing your entire crop with no plan or diversification can quickly negate the advantages. Many times, corn values have deteriorated as the marketing year unfolds and grain is shipped at low values. Having the ability to store and ship corn off farm will continue to be advantageous. Managing storage by diversifying sales, selling into deferred shipment months and delivering directly to the processor will be rewarded. A long-term plan, hence managing risk is paramount to storage success.