When the December 2009 corn contract was initiated by the Chicago Board of Trade, it reached a low of $3, and bounced back up above $7 last June before a long fade. Mr. Life of Contract Low is knocking on the door again, saying “I’m baaaaaack.” So what do you do with your corn, if it ever matures enough to harvest?

A minimal amount of corn is ready for harvest, and farmers with corn ready to combine are probably taking advantage of the opportunity for it to field dry as much as possible, since the Cornbelt will be consuming great volumes of propane this year to dry grain. With the added cost of drying to already high production costs, the net revenue from crops this fall will be minimal at best. So the challenge will be marketing, and the first question needing an answer is whether the crop will be stored and for how long.

Extension Marketing Specialist Darrel Good at the University of Illinois uses his current newsletter to explore the storage decision, which he says is a speculative decision in anticipation of higher prices. While futures prices are less than stable, the basis is more predictable and Good says, “A look at current new crop basis levels, then, can give some insight into the potential return to storage from basis appreciation.”

Using East Central Illinois elevators, he says the current basis is 25¢ under December futures. That is stronger than the basis of the past two years when futures prices were higher, but about the same as prices prior to the run up in 2007. He concludes that with a strong basis already, there may not be much room for improvement, particularly to cover the cost of storage. But when the carry in the market is added on, the outlook for a return to storage is brighter. Good says July futures are about 31¢ above December futures and a harvest bid was 57¢ under a July futures price, and he expects some significant strengthening of the July basis by next spring. A 15¢ basis improvement by early June, which would be parallel to this past spring, means the market is offering nearly 42¢ to store corn from harvest to next June. Will 42¢ pay the freight?

The time span from harvest to June would consume about 11¢ per bushel in interest cost, leaving 30¢ to cover the cost of storage, which would be sufficient for on-farm storage costs, if quality can be maintained, and if the crop is forward priced at this time. A delay in pricing the crop means a risk of lower futures prices and the loss of the return to storage that is now offered for corn.

Beans are a different story says Good, with harvest bids only 13¢ under November futures. That should be considered a strong basis, but the soybean market also has a lack of carry, seen by the fact that January futures are only 5¢ higher than November futures and July futures are only 8¢ higher than November futures. Good says the $9.09 cash bid is only 21¢ under July futures meaning that basis appreciation would not cover the cost of storage and interest would be more than what could be earned by storing.

Farmers believing that soybean prices will rise could own futures for less cost that owning and storing the physical commodity, since Good says selling beans at $9.09 and purchasing July futures at $9.30 would be cheaper than paying interest and storage. However, a declining futures price would result in margin calls and may present tax issues.

An alternative Good suggests is a basis contract that would allow beans to be sold for the current basis plus a portion of the futures price. Later, when the owner of the beans is satisfied with the futures price, settlement is made.

Summary:
The cost of storing the crop will include both interest and storage, but there are opportunities to increase income with a stronger basis and a stronger carry in the market. While basis improvement may not earn much, the market carry plus basis improvement may be enough to more than cover the cost of storage.