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Published August 27, 2012, 09:51 AM

Sell grain now or wait?

Sell grain now at attractive prices or hold off in the hope that prices will rise even higher? That’s the difficult choice facing farmers this drought-ravaged fall.

By: Jonathan Knutson, Agweek

Sell grain now at attractive prices or hold off in the hope that prices will rise even higher?

That’s the difficult choice facing farmers this drought-ravaged fall. There’s a seemingly legitimate case to be made either way.

“Take advantage of these prices,” says Rich Nelson, market strategist for Allendale Inc., a McHenry, Ill.-based grain marketing service.

His argument is that, historically, a market rally based on drought “is strong until (the market) feels comfortable with its guess on supply.”

That comfort level now has been reached, Nelson says.

On the other hand, “Even though wheat prices are high, we think they have the potential to go even higher,” says Mike Krueger, president of The Money Farm, a grain marketing advisory service near Fargo, N.D.

Corn and soybean prices also have the potential to rise even more, he says.

But experts agree one thing is clear: most farmers are waiting to sell.

Marketing grain shouldn’t be an all-or-nothing decision, experts say. Grain should be sold in increments, rather than all at once at what the producer hopes will be a top-of-the-market price.

“I would sell a little bit to take advantage of these prices,” advises Todd Davis, senior economist with American Farm Bureau Federation in Washington, D.C. “Then you might hold some bushels to take advantage of any rally that might come along.”

Since the middle of June, wheat, corn and soybean prices have soared at area grain elevators surveyed weekly by Agweek. Spring-wheat prices have risen about $1.50 per bushel, with both corn and soybeans rising about $3 per bushel.

Factors to consider

Davis identifies six general factors that producers should consider in deciding when and how much grain to sell.

The first is a producer’s price forecast. “What do you think might be coming in the next year?” he asks. “What are your expectations, your view of the future?”

The second is producers’ risk tolerance. “How comfortable are you with volatility?” he asks. Producers with a low risk tolerance should consider selling relatively more grain, and producers with a high risk tolerance might be comfortable selling relatively little.

Cash-flow considerations are a third factor, says Davis, who has family members who farm in Iowa. Sometimes producers sell grain because they need to raise money to pay bills.

Tax planning is another issue, something that producers should evaluate with a tax professional, Davis says.

Depending on the producer’s situation, selling grain now, with the income taxed during the 2012 tax year, could be advantageous. But the producer also might be better off waiting to sell until next year, so the income would be taxed during the 2013 tax year.

A fifth consideration is storage availability, Davis says. Farmers with considerable storage capacity have more latitude in selling grain than farmers with limited storage capacity.

Finally, farmers should consider their price objectives and the level of profitability they need to cover production costs and family living expenses, Davis says.

“I’m guessing we’re at levels that cover all these parts.”

Looking at price objectives and profitability levels helps take some of the emotion out of it, he says.