Markets Calculating the cost of holding grain in storage Consider your options for the 2023 crop. By Bryan Doherty Bryan Doherty With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He writes a weekly column for Successful Farming and Agriculture.com. Successful Farming's Editorial Guidelines Updated on December 11, 2023 Close What happened Despite significant challenges during a growing season of hot and dry conditions, many producers found they had a corn crop that yielded better than anticipated — that's the good news. The bad news is that they may find themselves with a lot of unpriced corn, and are now trying to figure out what to do. A year ago, the market was inverted (front month futures trading higher than the back months), which occurs in tight supply situations. This situation makes the decision to sell somewhat easier, as the market is telling you it wants your supply sooner than later. There is risk to storing if the back months don’t rally. Why this is important This year, more than adequate supply is telling farmers to hold grain and sell later. This is called a carry market. The risk in a carry market is that there is no guarantee the back months will hold their premium. In years of adequate supply, it is not unusual for each front month to eventually drift down to where the previous front month contract expired. So, if storing, the carry in the market must hold, prices need to rally, or both. What can you do? The only way to capture the carry in the market is to sell the carry. This could be through a hedge-to-arrive contract with an elevator or hedge contract with a broker on the May or July contracts. If you use one of these two methods, you have locked in a futures price, and not basis. This can be positive or negative. In big supply years, the basis may stay wide. You could forward sell, limiting you to any potential grain or risk through price or basis. Yet, forward selling (contracting) into the carry may be your best bet when you pencil the cost of holding grain as well as the logistics of moving large supplies later in spring or summer. Interest rates are considerably higher than a year ago, which is a factor many farmers haven't had to deal with in a long time. We feel the higher interest rate market creates more urgency to be rid of cash (corn in the bin), especially when corn supplies are dealing with a large ending stocks figure well north of 2.1 billion bushels, historically high and one that likely limits price rallies. If you prefer to stay in an ownership position, you can do so on paper. Currently, futures price volatility is low. This means that call options are commanding a lower premium than if the market were in a more volatile environment. The bottom line then is to make a cash sale with a known delivery date and have the re-ownership through paper. This way, your risk is fixed all the way around. If South American weather (or something else) comes along to rally prices, your call option will be there to retain the ownership position. This strategy also brings peace of mind, knowing you have downside risk covered and upside potential wide open. As with any strategy, be familiar with the risk and potential of any strategy prior to entering. Have an in-depth conversation with your advisor. Learn what will work best for your operation. Editor's Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779. Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation. About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit