How much did it really cost you to store grain?
In the fall of 2013, a corn producer could have received approximately $3.85 cash price for harvest delivery. Many farmers were not excited to sell at this price, so a lot of grain went into the bin, unpriced. Throughout the winter, there was opportunity to sell above $4.00, but these opportunities did not seem to last long. Now, we sit in mid-July, with the next crop on the way, and there is still a fair amount of corn around the country, still in the bin, still unpriced. As moisture has been good, it appears we should have an average to above average 2014 crop, so the bins need to be emptied soon. If you were to sell that grain today and receive $3.25 (7/11/14 price, Poet – Mitchell), you lost $.60 per bushel since harvest.
Another thing to keep in mind is that the corn did not sit in the bin for free. Running fans to keep grain in condition can cost between 3 and 5 cents per bushel. The interest cost of keeping the corn in the bin is about $.016 cents per month ($3.85 per bu. @ 5%). So in addition to the $.60 you gave away to the market, you had another $.20 in ownership costs, which netted you approximately $3.05 per bushel.
As the days of $7 corn are in our rearview mirror, it is more important than ever to have a strong marketing plan. So what that means, is that you need to know exactly how much 2013 grain you have left and you need to make a plan when, where, and how it is to be sold. The next step is to do the same thing with the 2014 crop. At this point in the year, the yield is still unknown, but all of your expenses are known so a breakeven can easily be calculated. This number is important to know so you can continue (or begin) to price new crop grain.
I have spoken with numerous farmers who said they don’t want to price any grain, in case it goes up like it did in 2012. Though it was painful to deliver $5.00 corn when the truck next to you was delivering $7.00 corn, if your original sale was above your break even, you still made money on the sale. Others were concerned that they had to buy out contracts from the local elevator because they did not have enough grain to fill the contract. This is why you have crop insurance. As long as your cash sales don’t exceed your total dollar guarantee, you will have funds to buy out those contracts.
Regardless of the $3.00 corn or $7.00 corn, you need to have a plan. This plan can include a combination of cash contracts, basis contracts, futures or options. Recent history has proven that you cannot outguess this market, so stop trying to. Your probability of success is much better if you have a plan and stick to the same plan each year.
If you would like more information on helping to manage the risk in your operation, contact one of our instructors at the South Dakota Center for Farm Ranch Management at 605-995-3098 or email@example.com.