Store or sell? Make the right plan for you

You’ve worked toward harvest all year, and now you’re faced with the tough decision of whether to sell your grain out of the field, or whether to store it and take advantage of winter pricing. Ultimately, you get to decide what’s right for you, but to help you figure that out, you’ll need to consider your available storage space, cash flow needs, movement requirements, and break-even levels.

Start by setting a fall basis, particularly for soybeans, sooner rather than later. Barge freight is getting expensive and, if farmers produce a decent-sized crop, basis will continue to widen. Historically it tends to widen within the harvest window due to growing supply. Across the nation, we’ve seen a fairly good growing year and, although yield was down on the last WASDE report, overall yield estimates are very good. We do not expect to see narrow fall basis levels.

We can’t say it enough: If you need to move bushels at harvest, securing nearby basis needs to be your first priority. Alternately, if you can afford to hold onto grain until December and beyond, the basis will likely narrow so you may have more opportunity to lock it in. 

Selling grain straight out of the field

Typically, cash grain prices are at their lowest at harvest. If you haven’t already forward sold for fall, this isn’t the best time to sell. However, sometimes it’s unavoidable, especially if you end up having a bigger crop than you planned for or if you need cash flow immediately. Try to be proactive in selling ahead when you can, but if you can’t, make sure to secure price as soon as possible because waiting can lead to wider basis levels.

This year in particular, with variable crops and weather, many farmers could be more undersold than planned due to nervousness around crop failure. This fall we may run into tougher harvest price situations as people are forced to sell “off combine” due to bigger than expected crops. The best you can do in this situation is look at your break-even levels to see if you can still be profitable. If current cash prices don’t work for you, fall is a great time to look at protection or enhancement strategies for your unsold grain that goes into storage. This can help you make up for what you might lose spot-selling at harvest.

Pros to off-field sales:

• Even if you deliver grain, that doesn’t mean the story of your grain is over. With Cargill you have opportunities to continue marketing depending on your bias.
• Selling off the field frees up storage space.
• You handle your grain only once (rather than from field to bin then bin to elevator) and never worry about storage conditions (drying, heating, etc.).
• You can secure cash flow early in the season.

Risks to off-field sales:

• You might end up stuck with accepting a lower-than-desired price when making last-minute sales. (Keep in mind you may be able to get back into the market on what you’ve sold).
• You risk wide basis levels and may not end up selling at a profit depending on your current break-even levels.

Storing grain for winter sales

At risk of sounding like a broken record, we must remind you to take several key steps before deciding to store grain for sales later in the season. Review the sales you already have on the books and your cash flow needs. Consider rolling contracts. If you have grain in storage that you have contracted and are planning to roll to future months, don’t forget about December hedges and possible carry in the market. We may end up seeing decent carries in the market this year (a carry occurs when the markets aren’t concerned about supply and pay you better to hold it in your bin and deliver later) and we have potential to see bigger numbers if we roll into future months. The past few years have seen an inverse in the futures market, where nearby futures were higher than the later months. This year, we’re already seeing a carry market where later months are higher. Don’t forget about what is already sold and roll targets based on when you plan to deliver.

Cost of interest can also be a big consideration when making your decision around sales timing. If you have a high-interest rate, then you will need to be recouping that in your cost of grain. Holding your grain for higher prices might be your only option to break even.

Nail down your available delivery dates and work with your rep to ensure you’re capitalizing on the right timing and potential premiums in the local market. Holding can reward you with higher level prices and more opportunity to employ different marketing strategies as long as it’s feasible for your operation to store your grain.

Pros to storing grain for winter:

• There are opportunities around market carries that can benefit your price.
  • When deciding if storage pays, look at the value of nearby futures versus later months. Then think about the interest cost on your money potentially sitting in the bin, compared to cash in the bank. If grain is worth more in the future, costs are covered, and your bias is that basis will get stronger, then storage is a great option.

• You can be rewarded for your patience, especially around the holidays, when sales have slowed and grain buyers begin to incentivize winter and holiday deliveries.
• Storing gives you other outlets to sell. You may be willing to haul further for a better price when you are no longer busy with harvest.

Risks to storing grain for winter:

• Grain quality can depreciate quickly if not carefully tended to (heating in the bin, growing diseases, insect damage).
• There is no guarantee that prices will go up and you could lose opportunity month over month.
• Emotional attachment becomes a big risk factor. If you wait, you may start to get high hopes for the best price and this may not happen, catapulting you into panic at market lows.

If you’re unsure about the best plan of action, review your payment deadlines and your storage space. You can also contact your local Cargill rep to review sales you already have on the books and if these can meet your current cash flow and space needs.