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SC Iowa | It's been an interesting year regarding moisture discounts, but first some history on the evolution of moisture discounts in our market.
Our moisture discounts have always been "X amount per half point, with no shrink". Back in the day, when the price range of corn price was 50 cents to a buck, we would have specific moisture discounts...ie; 3 cents per half with no shrink. As we entered the rock and roll era, we realized that those methods did not provide the same range of fairness (for either party) over the ranges of corn price that were developing..
So, a few years ago we went to discounts that were stated as "X % of contract price per half point of moisture with no shrink", which smoothed out some of the highs and lows that were a part of the prior method.
Our "standard" moisture discount is 1% of contract price per half point of moisture with no shrink or drying charges".
There are times when we might want to stimulate early harvest activity in years with a steep inverse, so you might change your moisture discount for a period of time. This September we changed our discount to 1/2% of contract price per half point with no shrink. If you run the numbers on that one, it literally is a "giveaway" moisture scale---you might as well bring in 24% corn as 15% corn with corn at $5. Because the inverse stayed with us through harvest and beyond, we stayed with that scale a lot longer than I expected---all the way through December.
So now we have gone to a scale that is halfway between "giveaway and normal".....3/4% per half point with no shrink.
We knew farmers were holding a lot of corn with moisture above 15% after harvest and wanted to find a way to be a very competitive market for that corn since we can handle "moisture" in our operation.
The amount of corn that was over 16% moisture was almost 40% of inbound corn in December, but that has dropped to about 25% so far this month, so a lot of the really wet stuff has moved.
Moisture discounts are just part of the equation along with basis bids in an effort to achieve least cost origination for the entire book of corn each month.
As a merchant you have to make some judgment calls about the best tactics to achieve those results.
Ray J
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? for Ray Jenkins - Moisture Discount
