To Store or Not to Store

Choices: To store or not to store, that is the question.
As you get your combines going to reap the long-awaited prize, the question is what to do now. The answer to this question rests on capacity for on farm storage and what your borrowing costs are. Notice that I have not brought up the potential of future prices (hopefully higher!) in the discussion. That, we will address below.
The storage question is pretty easy. Either you have enough storage capacity to hold your crop, or you don’t. If you don’t, it becomes a question of the costs associated with your storage partner. In the case of one elevator, storage costs are $.05 per month. Add this to your already borrowing or opportunity costs, this may not be the best choice. If you do have on farm capacity or other “free storage” facility(ies), it now comes down to analyzing borrowing costs.

The futures market provides an indication of what borrowing costs may be. When looking at forward futures months in corn, the implied cost of funds going to July is approximately 12.56%. If your borrowing costs are less than this, it may be economically feasible to store. The opportunities in this scenario are increased through other financing programs through the CCC for example.

In both of the scenarios above, the risk vs reward depends on what your marketing plan looks like and whether or not the market does what you want it to do in the time frame you want. This is where our revenue management process kicks in. Once we have your storage and delivery situation in place and have identified your cost of funds, we will build your risk profile revenue picture. Before recommending any type of hedging strategy, we will get confirmation from you on what your expectations are. Further, we will ask how much risk you are willing to live with should the market fail to meet your expectations.

This year has not been easy. If you are happy with your marketing plan, there is no reason to change. However, we have heard grumblings about many who were in the marketing woulda, coulda, shoulda club. The marketing plan missed the boat, if you will. If this is you, reach out to us. We would welcome the opportunity to demonstrate a different way in managing your revenue. A different way versus “hey John, where do you think this market is headed?” My answer? Take two aspirin and lie down until the feeling passes. Then let’s put together a revenue management plan!

Want to know more? Give me a call at 320-761-0406 or email [email protected].

Thanks for reading.