Maximize your grain storage
The availability of on-farm storage can add harvest efficiency to a farming operation and flexibility to a grain marketing program. Storage enables the producer to use marketing tools that capture seasonal price improvements or narrower basis levels following harvest. Storage facilities may also increase the rate at which harvesting can be completed by decreasing the time spent transporting and unloading grain.
Besides the opportunity to gain additional time for futures prices and basis to improve, what else should you consider when making your decision whether or not to build more bins?
Getting the most from on-farm storage requires careful planning to ensure the facilities fit your farming operation’s needs. It also requires a commitment to managing stored grain properly to ensure quality. And along with storage considerations are the need to do a better job of marketing those bushels.
Before you expand on-farm storage capacity, look at your farm’s finances. What is your profit margin? How much and when do you need cash flow? Is building more on-farm storage the best use of your limited working capital? Deciding whether to expand your grain storage isn’t a one-size-fits-all situation.
If you’ve already added grain storage, integrate that information into your marketing strategies. Rather than selling grain because you’ve run out of space or you need cash, plan ahead by using preharvest marketing and “locking-in” of futures prices, but perhaps not basis. You can then use bins to make grain sales that take advantage of historical basis trends, and deliver grain to processors when transportation and labor are more readily available.
Use marketing tools
Work with your grain merchandisers and learn to use a variety of marketing tools. When you can lock in the best basis, consider using a basis contract. You can also capture the futures carry using a storage hedge, yet leave the basis open.
These marketing tools, including minimum price contracts, are underutilized in managing futures price or basis risk. Farmers can use on-farm grain storage to capture better basis, especially for corn.
Perhaps you lock in an attractive basis seasonally and settle the final futures price with your grain merchandiser before, say, May 1 or July 1. The spring and early-summer months are when you have a better chance to capture the higher futures prices. This describes a typical basis contract readily available through most grain merchandisers.
The key is to pay attention to seasonal futures prices and basis patterns, and act on them. This includes preharvest sales that could avoid accumulating storage costs.
Be pragmatic in your pricing expectations and make incremental sales more often. These sales can have a big impact on your overall profitability. Try to prevent getting blindsided by a steep drop in futures prices that could lead to storing more bushels even longer.
Johnson is an ISU Extension farm management specialist.
• improve harvest efficiency
• capture improved basis postharvest
• reduce the cost of drying wet grain
• improve efficiency of grain handling, transportation and labor
• get a good return on investment for your farm’s capital
This article published in the November, 2015 edition of WALLACES FARMER.
All rights reserved. Copyright Farm Progress Cos. 2015.