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An eye to storage decisions

Agriculture.com Staff 11/30/2007 @ 9:51am

With the grain futures markets gyrating each day, it can be easy to lose sight of doing the little things when it comes to pricing your grain. But grain storage is an important issue and looking at the market for storage rewards can help you make wise decisions during times of volatility.

This has been an interesting year for storage and spreads in forward prices. Ample harvest supplies put a crimp on storage space and sent basis lower in the early fall. Forward carries in the market were huge, especially in soybeans as grain merchandisers were more interested in taking in corn off the combine then beans.

Now, basis has improved substantially in the past month or so. Gains of 20 to 30 cents in the last month have been commonplace across most of the country.

So, with large gains in basis and high prices, it seems appropriate to ask the question: "What is the market offering for storing?" To answer that question, we utilized our database of spot and forward prices on over 2,700 grain buyers across the country. Each day, we collect over 25,000 prices and this data helps provide valuable insights into what the market is willing to give you for storing your grain for the remainder of the season.

The table below shows what the average spread is between various forward contract months and the spot price for each buyer. For example, the April column signifies the average spread between corn buyers April forward contract price and their spot price. In Iowa, the corn merchants are paying 13.5 cents more for April delivery as compared to spot delivery. For comparison, we have also included the corresponding costs of storing corn based on 3.5 cents per month. So, in Iowa the average premium is 13.5 cents but it would cost 14 cents to store it, so obviously this is not a good alternative. The asterisks in the table show the "optimal" month based on the 3.5-cent storage costs.

There are some important things to note about the results. First, there is a lot of variation in when the best month for selling grain is. In some cases, it is optimal to go all the way to July and in other cases selling it in January is best. Second, the Western Corn Belt seems to be paying less for storage and generally is not offering strong premiums for deferred delivery. As such, it may be optimal to sell your grain sooner if you are in this neck of the woods. The Eastern Corn Belt seems to be the opposite. Holding grain longer offers better rewards in this part of the country.

For soybeans, the market is offering more incentives for storing. Most states it seems to pay to store until April. However, for Minnesota there actually isn't any months that are offer enough rewards to cover five-cents-per-month storage costs.

While this numbers are useful for helping guide your decision, please do your homework. Each local market can have distinct differences and opportunities so consult your local market for the best opportunities.

With the grain futures markets gyrating each day, it can be easy to lose sight of doing the little things when it comes to pricing your grain. But grain storage is an important issue and looking at the market for storage rewards can help you make wise decisions during times of volatility.

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