Grain crops such as corn, wheat and soybeans have a key advantage for farmers: They can be stored longer than many other ag products, such as meat and dairy. This can allow farmers to hold onto supply and sell it when the market is in their favor.
However, it’s important for farmers to have a clear strategy in place when it comes to holding onto grains. While there can be benefits to storing crops for future sales, there can be downsides to this approach as well. Here’s a closer look at factors you should consider when making decisions on your grains.
Interest cost of inventory
If you have an operating loan, which is used to pay for inputs until grain can be sold and the loan paid back, you need to figure out how much interest you will be paying for holding grain in storage, particularly as rates have risen over the last 18 months. To calculate your cost on a per-bushel basis, you multiply your expected harvest price by the interest rate and divide by 12 to get a monthly figure. For example, if you have a bushel of corn with an expected harvest price of $4 and an 8.5% interest rate, you will pay roughly 3 cents per bushel, per month in interest. Of course, a higher commodity price or a higher interest rate will increase your interest costs, as will a longer time in storage.
There is also a cost to holding grain even if you don’t have an operating loan. Completing a sale allows you to put proceeds into an interest-bearing deposit account. The longer grains sit in storage, the more potential earned interest you miss out on.
Commercial storage
If you don’t have on-farm storage and don’t want to sell your grain right away, there will be storage costs at your local grain elevator. Costs vary from elevator to elevator, but there is often a fixed charge for the first few months of storage with an additional charge for each additional month. Some elevators simply decide to charge a daily rate instead.
The condition of your grain
As your inventory sits in a bin, it has the potential to lose moisture. With a loss of moisture comes a loss of weight, and because grain is sold based on weight, this means a lower overall return when you are ready to sell.
There can be other more serious issues associated with storage, such as pest infestation and mold, that can cause the grain to spoil. To prevent against this, you’ll want to use storage that has moisture and temperature controls, but there are typically costs associated with these solutions.
Added handling and transportation costs
Each time you move bushels in and out of storage, there are costs associated with the handling of that grain. This includes the working time it takes for you or your employees to complete the task, any wear and tear on equipment and subsequent repairs, and the cost of shipping your grain to and from the storage location.
Beyond these items, there are market factors to consider, including potential changes in the basis (the difference between the futures price for a grain and the current local cash price) in either direction. A key benefit of holding onto grains is the possibility of selling at a higher price in the future, but like with any type of asset or investment, there is risk involved as future prices can decrease as well. Working with knowledgeable partners such as a market advisor, an insurance agent and a trusted ag banker can help you answer key grain storage questions and develop a strategic approach when it comes time to sell.