Last fall you looked at cash grain prices and quickly determined it was not the time to “reward the market.” Far and away, the preferred choice by most farmers was to dump their grain in the bin and let the padlock get rusty. After all, prices had to get better, and some of those distant contracts were attractive enough they were providing a “return to storage.” On farm storage costs plus interest were being covered and everyone else was doing it, so why not? You may need to visit the hardware store for a can of penetrating oil for that padlock.

Market dynamics have certainly changed the complexion of the grain market, according to Melvin Brees of University of Missouri’s Food and Agriculture Policy Research Institute (FAPRI). In his latest Decisive Marketing newsletter, Brees walks through the changes that have occurred in the basis, which have diminished your return to storage, and caused you to question your marketing plan. He says, “So far, the success of storing corn and soybeans has depended largely upon location and timing. For those located in southeast Missouri, other points along or near Mississippi River delivery points, or near a large user, cash corn and soybean price recovery or basis strength has contributed to profitable storage returns. However, in recent weeks, corn and soybean basis has weakened somewhat in these areas. (In areas far from processors or river terminals) storage returns have been much more difficult to obtain as limited basis gains were largely offset by futures price losses following the completion of harvest. Regardless of location, the futures price rallies during late December and into the first few days of January offered the best (or only) opportunity to capture storage returns. The futures price declines since then have erased the possibility of storage profits in all but a few locations.”

Be assured that you made a good decision last fall, when you analyzed the market and made your choice for storage. However, Brees says the increasing estimates of US production and the satisfactory progress being made with the South American crops have combined to assure the market that sufficient supplies of corn and beans will exist for some time to come. Brees says that will dampen market volatility and soften price rallies, and he adds, “May and July futures prices offer additional carry or price premiums that may recover additional on-farm storage costs. The historical seasonal price patterns suggest that cash corn and soybean prices often rally into spring, but these rallies might be limited to the carry already in the futures market with somewhat higher prices for deferred month futures prices. With the current outlook, it appears that additional opportunities for storage gains for corn or soybeans may be limited or difficult to obtain. Any additional basis strength and futures price increases that offer cash prices at or above storage breakevens should likely be viewed as selling opportunities.”

Where do you get reliable information about basis, which will help you make any necessary adjustments in your marketing plan, given this prospect for declining returns to storage? We’re glad you asked!

Illinois (decision aid)

Iowa (calculator)

Calculator for: Kansas, Nebraska, Missouri, Oklahoma, and parts of Colorado and Texas

Maps for: Kansas, Nebraska, Missouri, Oklahoma, and parts of Colorado and Texas

Summary:
If your grain storage is not earning a return, then you should question if you need to adjust your marketing plan. A “return to storage” is an indicator of its profitability. The dynamics of the market have changed since you placed your grain in storage, and the diminished futures carry and weak basis in many areas is eroding that return to storage.