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Dr. Hunter Biram and I are on the road this week at the 2024 Southern Extension Outlook Conference in Knoxville, TN. This is one of the premier Extension conferences each year, where we dive into issues surrounding southern agriculture and provide market updates/perspectives from our home states. For this episode, we are joined by Dr. Grant Gardner (University of Kentucky) and Dr. Will Maples (Mississippi State University). Dr. Grant Gardner presented the 2025 winter wheat market update, and Dr. Will Maples presented the 2025 soybean market update.
For this week's newsletter, I'd like to build off our podcast discussion and highlight an article recently co-authored with Dr. Grant Gardner. In this article, we discuss some marketing strategies for last year's crop in storage; however, this information is also relevant for new crop marketing strategies.
To Store or Not to Store? Old (and New) Crop Marketing Strategies
We discuss three facets of the crop marketing decision: cutting losses (e.g. selling at harvest cash price), storage with an operating loan, and storage with cash flow using a hypothetical situation.
Assume that farmer Ethan is deciding what to do with 100,000 bushels of corn, and the cash price is currently $4.00. He could sell, collect $400,000 today, and use that cash to cover expenses in other areas of the operation. Or, he could also store those bushels on-farm using an operating loan or cash flow (working capital).
Using an operating loan, Ethan must continue to utilize $400,000 (100,000 bushels × $4.00) at a 9% interest (current rates). As prices will typically be lower at harvest due to new crop supplies, he is prepared to sell the grain in April, expecting prices to rise (6 months). Ethan’s interest expense on the loan would come out to $18,000 ($400,000 × 0.09 × (6/12)). Dividing that by 100,000 bushels, his per bushel expense is $0.18 ($0.03/bushel/month), meaning prices would need to increase to at least $4.18 to pay the interest-only portion of the storage expense. Ethan would also incur forgone interest expense by storing, which is the opportunity cost of a delayed sale. Forgone interest amounts to $0.09/bu ($0.015/bu/mo) in this case, which is calculated using the current CD rate of 4.5% ($400,000 × 0.045 × (6/12)). If Ethan were to account for their delayed sale ($0.09/bu) and the interest expense of storage ($0.18/bu), corn prices would need to increase to at least $4.27 to pay both the direct interest expense and the opportunity cost of storing.
The final option is for Farmer Ethan to fund some of the storage using cash. As Ethan funds more of the loan using his funds, interest costs decline. If he funds all the storage with cash, his interest expense is $0.00. However, he would still incur the forgone interest expense of $0.09/bu. The downfall of this method is that Farmer Ethan now has less cash on hand to fund other areas of his operation.
The choice to store or sell is highly dependent on the operation. Sometimes, making sales is the best decision because it moves focus to the next marketing year, especially if an operation does not have enough storage to hold old crop stocks and new crop supplies.
In conclusion, it is worth noting that this analysis only looks at interest expenses and touches on forgone interest (opportunity cost of storage). It does not account for other expenses that occur with storage, such as quality losses, grain handling, and capital recovery. Interest rates will also improve, as the Federal Reserve is expected to continue to lower the Federal Funds rate through the end of 2024 (CME, 2024). Finally, prices may not increase by April, and all storage could result in a loss. However, on average, over the 2012 - 2023 marketing years, corn and soybean prices have followed a similar pattern of increasing relative to the price at harvest, a "storage gain" (Figure 1). This seasonal pattern of prices can be helpful in developing an on-farm marketing strategy.
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