To Store or Sell: Farmers Face Harvest Decisions

As the 2009 harvest draws to a close, farmers are tasked with the decision about how to best utilize their crops.

Addressing post-harvest plans is difficult in an industry hinged on market changes. It becomes even more challenging after experiencing a delayed harvest, as in this year’s case. Farmers weighing and playing out their options is very comparable to brokers strategizing in the stock market.

The complexities of harvesting are widely unknown to general consumers, who fail to consider the business aspect of farming.

The prices of commodity crops fluctuate throughout the year, as markets rise and fall to reflect a variety of societal and economical factors including oil prices, value of the U.S. dollar, global demand and weather conditions.

Midwest corn and soybean farmers experienced, and may still be experiencing, a belated harvest this year because of late-season rains, which affects crop quality and availability and can contribute to market prices. However, because corn supply is more than adequate, the unfavorable weather won’t influence corn prices this season. While soybean supply may be tight this year, prices won’t be significantly affected by bad weather.

The USDA's projected price ranges are $3.25 to $3.85 for corn and $8.20 to $10.20 for soybeans.

Agriculture experts are making recommendations based on their knowledge of current supply and demand, and also base advice on speculation of future demand.

Expert Suggestions (Food & Agricultural Policy Institute)

• Soybean farmers are advised to sell rather than store this year because demand is strong, supply is tight and no storage premium exists.

• Corn farmers are advised to store rather than sell this year because supply is strong and because a storage premium is being offered.

Storage premiums are the future prices of commodity crops. July has the best corn price at $4.65, and August has the best soybean price at $10.15, as priced by the Chicago Board of Trade (CBOT) Nov. 16.

Farmers look at storage premiums, as well as market forecasts, to aid them with their decision-making. From these projections, they can better decide how to allocate their grain among three basic options.

Harvest Options

• On-farm storage: Farmers can store grain on-site to haul and sell at later dates without incurring storage costs, but must have the resources and revenue to do so. In doing so, farmers can take advantage of storage premiums.

• Elevator storage: Farmers haul their crops to elevators for storage for contracted periods of time and pay storage fees. This option also allows for storage premiums.

• Sell: Farmers receive upfront cash from direct sales at current market prices.

To further complicate the decision process, three basic contract options exist for farmers.

Contract Options

• Flat-price contract: Delivery date, quantity and price are locked in with a grain elevator.

• Basis contract: A difference between local price and the CBOT price is set and used as a factor in the selling price at a specified delivery date.

• Hedge-to-arrive contract: The current CBOT price is honored at the delivery date.

A more comprehensive guide, compiled by Farmers Cooperative, can be located at http://www.fccoop.com/departments/grain/glossary.cfm, detailing advantages and disadvantages to several harvest options.

Farmers use their best judgment and turn to market signals and professionals when selecting how to market their crop and hope for the best. As the weeks and months roll on, they will learn if their decisions have paid off.