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Published August 04, 2014, 09:33 AM

The cost of storing 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.

By: Jared Hofer, Agweek

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, 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, you have lost $.60 per bushel since harvest.

Another thing to keep in mind is the corn did not sit in the bin for free. Running fans to keep grain in good condition can cost between 3 and 5 cents per bushel. The interest cost of keeping the corn in the bin is about 0.016 cents per month ($3.85 per bushel at 5 percent). So in addition to the 60 cents given away to the market, there was another 20 cents in ownership costs, which netted approximately $3.05 per bushel.

As the days of $7 corn are gone, it is more important than ever to have a strong marketing plan. That means farmers need to know exactly how much 2013 grain they have left and 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 expenses are known, so a breakeven can easily be calculated. This number is important to know to continue 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 corn when the next truck was delivering $7 corn, if the original sale was above the breakeven, money was still made 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 corn or $7 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 don’t try. Probability of success is much better with the same plan each year.

Editor’s note: Hofer is the director of Mitchell (S.D.) Technical Institute’s farm management program.

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