Jon Scheve with weekly market commentary made on September 6, 2024
With harvest nearly in full swing across the US, many farmers are asking me “which crop should I store if I am limited on space?” My farm operation has over 100% on-farm storage capacity, and I highly recommend most farmers should be as well. Having 100% on-farm storage capacity not only simplifies harvest storage decisions and increases flexibility, but it also allows for more low-risk opportunities to maximize profit potential.
Despite the benefits, many farmers are still resistant to having more storage for a variety of reasons. Therefore, those farmers will need to analyze their own unique situation to determine what is more profitable for them to store at home.
Following is what I think a farmer should consider:
Consideration # 1 – Interest on an Operating Note
The cost to not pay your operating note off and continue holding grain in storage is probably the most important consideration when deciding which crop to store.
It is calculated by taking the loan’s interest rate against the cash value of the grain being stored.
For example, with a 1-year operating loan interest rate of 8%, multiplied by the cash values of each crop at harvest, let’s assume $4.00 for corn and $10 for beans, divided by 12 for a monthly rate, and the cost per month to store corn is 2.6 cents per bushel per month while beans are 6.6 cents per bushel.
Since the cash value of beans is always much higher than corn, the interest cost to hold beans will always be higher, making corn usually the better crop to be stored.
Consideration # 2 - Basis
Basis is the difference between the price on the board of trade and a local cash bid. Right now, corn and bean basis values throughout much of the corn belt are relatively close to the same levels for harvest delivery. Last year, due to low water levels bean basis values for farmers near the Mississippi River were heavily discounted and it paid to store beans. With the potential of a big bean crop coming this year that could happen again.
However, corn basis improved dramatically post-harvest last year and all indications are that farmers are going to be extremely stubborn about selling at these lower values. That could mean that basis values for corn jump after harvest is over.
Consideration # 3 - Beans Export Timetable
Most beans are exported out of the US during the winter, with the highest demand being October through February. Most corn exports happen after beans are gone in the spring and early summer, so logistically storing corn may mean more basis profit potential down the road. Therefore, a farmer may not want to store their bean crop if it will be shipped out just two months later verses the potential from increased basis levels on corn later.
Consideration # 4 - Income Needs
Sometimes farmers need end of year income to offset expenses. Since bean values are always higher, more income can be generated faster moving beans versus corn.
Consideration # 5 - Logistics
A bin holds 7% more corn than beans on a per bushel measurement. Plus, most producers say it is easier sending trucks directly to the processor or elevator during bean harvest, than managing logistics of long lines during corn harvest.
What About Futures Values?
Contrary to what many farmers think, futures values, or the potential of price action do NOT matter when deciding which crop should be stored. That is because farmers can always sell grain for cash, and then immediately re-own futures in a brokerage account and maintain the same downside risk and/or upside potential.
Basically, the risk is nearly the same to have unpriced grain in a bin as having a long futures position in a hedge account. The only difference is that selling for cash at harvest, and re-owning it, eliminates any basis or spread opportunities that could increase a farm’s profit potential. But delivering the grain, setting basis, and collecting the money immediately does stop the interest costs on the crop.
Bottomline:
For those with limited space, the interest cost alone usually makes it more beneficial to store corn over beans. However, it is still a good idea to walk through all the considerations each year to make sure you are making the best decision for your farm operation.
Having 100% on-farm storage is almost always a better decision. Not only does it take the storage decision guesswork out of your grain marketing strategy, but it also makes it easier to maximize a farm operation’s profit potential through basis and market carry opportunities too.
Please reach out to me if you would like to discuss which crop you should be storing this harvest.
Jon Scheve
Superior Feed Ingredients, LLC
9358 Oak Ave
Waconia, MN 55387
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