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Make Your Grain Bins Pay You Back (Article)
By: Kurt Lensing, AgStar Assistant Vice President and Industry Specialist
TAGS: Grain, Women In Agriculture, Young, Beginning Farmers, Risk Management Planning
 
November 14, 2016 -

This year, with an unlikely combination of circumstances, has surprised even those that been in the business for decades. Producers are experiencing record or near record corn and soybean yields, very wide basis numbers, and excess moisture putting a damper on harvest progress. South American soybean and corn planting conditions and progress has been favorable for the most part. On the demand side of the equation our grain exports have been quite strong, despite the very strong U.S. dollar, which makes it more expensive to buyers with foreign currency. Other recent factors affecting the markets have been speculative funds willing to buy back a large number of corn contracts over the last month. Part of the recent soybean rally was driven by tight world ending stocks of vegetable oil. The speculative funds helped push the rally a bit higher when adding to their bought soybean positions or “long positions.”

The most recent price rally occurred during the middle of harvest. Today the market is offering higher prices if we hold onto our grain until spring or summer. The challenge with trying to get a higher price in the future comes with logistical limitations as well. Many farmers cannot store 100% of their production, especially in years they produce above normal yields. If you fill up your on farm storage and need to use commercial storage, be prepared to pay a bit more. Be sure to ask about different delivery options and if it’s possible to get money advanced on unpriced grain. Many grain elevators or end users of corn will have minimum storage fees and are about 15-20 cents/bushel until year end, and 3-5 cents a month after that. If we are looking to carry corn into July we might looking at paying nearly 50 cents a bushel to “carry” or hold grain for eight months of the year. The “cost to carry” = (Current Futures Price x (Days to hold/365) x Interest Rate %) + ((Days/365) x 12 x Month Storage rate * 100). When deciding to hold onto grain the expected returns need to outweigh the costs.

On farm storage, which in many cases is a very economical way to capture higher prices in deferred months -- especially in years with large crops -- typically the market pays more to hold large crops since the demand “pipeline” is full at harvest. On farm storage can pay you back in the form of higher basis levels estimated 20-30 cent per bushel basis improvement plus another 20-25 cent per bushel increase the futures prices for deferred months. Making your grain bins pay you back includes actions like “locking in the carry” (selling deferred cash contracts) and Hedge to arrive contracts or selling futures for spring or summer months. Knowing and comparing historical basis is the other component that can help us pay for our storage. To learn more about where to find cost of carry calculators and how to find out what your historical basis is along with other industry insights contact your local AgStar representative.

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Comments
Historical Basis
Reader, This is Kurt Lensing the author of the article. I use a subscription from DTN: https://www.mydtn.com/. Another company called Geo Grain has a subscription for current and historical basis: http://www.geograin.com/farmers.aspx. Unfortunately I am not aware of free sources for localized historical data. I hope this helps, let me know if you have any further questions. Kurt Lensing Asst. VP Grain Industry Specialist AgStar Financial Services, ACA 806 3rd Street South Waite Park, MN 56387 320-203-4619 Direct 320-248-6258 Mobile kurt.lensing@AgStar.com AgStar.com The information transmitted is intended only for the person or entity to which it is addressed and may contain information that is confidential and/or privileged. Any review, retransmission, dissemination or other use of, or taking of any action upon this information by persons or entities other than the intended recipient(s) is prohibited. If you have received this in error, please contact the sender and delete the material from any computer. Thank you for your cooperation.
historical basis
good article. What website do you recommend to track historical basis for grains?
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Kurt Lensing
AgStar Assistant Vice President and Industry Specialist
Kurt, Assistant Vice President and Industry Specialist at AgStar, helps grain clients and agribusinesses manage commodity risks. Prior to AgStar, he was involved in merchandising and trading of agricultural commodities at grain elevators and oilseed processing plants in the upper Midwest for a multinational grain and processing company. Kurt was raised on a dairy farm in central Minnesota, and received his Bachelor of Science Degree in the study of Agricultural Economics at North Dakota State University. 
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