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Clarke Co, Iowa | Last fall I set a target price for marketing this years corn crop. That would have been profitable at my APH. long story short fall delivery corn never got to my target price and its not looking good now.
Options at this point, other than throwing in the towel and quitting.
1. Contract at a loss in an attempt to minimize possible losses. I don't find that's not an attractive solution.
2. Wait and hope the market comes back before fall. Seems like a lot of wishful thinking to me.
3. Make a plan on what to do if the market is still down at harvest. This seems to be where I'm at today.
A. First I don't have a drying set up or storage to hold even an average crop. Plus I'm 71 and can't see rebuilding a 40 year old setup now. That mistake was made twenty years ago when it should have been a no brainer.
B. Pay to have it dried and store it. At my local elevator stored corn has to be 14% and storage is 15 cents for the first 60 days then 3 cents per month. Shrink is 1.4% and drying is 4 cents per point. If I start with 15.5% corn and sell it I have no shrink or moisture dock. But it costs 6 cents to dry and 2.1% shrink to take it down from 15.5% to 14% plus an additional 15+ cents per bushel to store it. So, even figuring $3 corn the shrink is over 6 cents + drying 6 cents + minimum storage 15 cents for a total of 21 cents minimum.
C. Sell at the cash price and buy a calls with the money it would have cost to store it. If you look at calls 210 days out (total storage cost till May would be 36 cents 21 +3 cents times 5 months) 36 cents buys a call 120 days out at about 20 cents under todays price.
Now lets compare: for arguments sake lets assume the fall out of the field cash price is $3.00.
1. Sell 100,000 bushels of 15.5% corn right off the combine and you have $300,000.
2. You store 100,000 bushels and spend $21,000 to put it in storage for 60 days. plus another $3,000 every month until you sell it.
3. You take $36,000 out of your sales check leaving you $264,000 to pay bills and buy 20 calls 210 days out at 20 cents less than the currant market close.
What's going to happen in the market is anyone's best guess. But, it is going to do one of three thing for sure: go up, go down, or stay the same.
If the market goes up in the first case you missed out and if you stored it you need a 21 cent rally in the first 60 days and an additional 3 cents per month after that just to break even. If you bought calls it takes 16 cents up to break even and anything after that is increased income.
If the market goes down for seven consecutive months taking the $300,000 was by far the best choice. If you stored the grain you are losing on every side the $300,000 total is shrinking and your out $21,000 to start and $3,000 more each month. In the last case it is not as good as cash in fist but you are protected with $264,000 cash in fist and at anything less than a 20 cent drop you can recover part of your $36,000.
last if there is no price change for 7 months the first option is by far the best. The money in hand at no cost. If the market goes down the second option is totally horrible not only are you out $21,000 to start and another $3,000 every month and now the corn is worth lees than $300,000. In the last choice you have your original $264,000 plus your 20 calls are still worth $20,000.
End result you get $284,000 total.
I do not see paying for storage as ever winning so which do I do take the money and run or invest in calls and hope.
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