PostHarvest Marketing Grain Storage Economics

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Post-Harvest MarketingGrain Storage Economics

• Price Seasonality
• Costs
• Returns
• Unhedged
• Hedged
• Variability of returns
• Optimal timing

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Price Level Basis Spread Cash Flow Volatility Busi
ness Tax Control Production Quality Risk Rating
Areas of Risk Exposure
Pricing Alternatives
Selling out of inventory or Establishing Pre-harve
st Price Level
Moderate Large Low to Large3 Low to Large3 Low
to Large3 Low to Large3 Extreme

X X X X X
X X
X
X X X X
X
X X X X
X1 X1 X1 X1 X1 X1
X2 X2 X2 X2 X2 X2
X
1. Cash Sales 2. Forward Contracts 3. Short
Futures 4. Non-roll single or multi-year
H-T-A 5. Intra-year rolling H-T-A 6. Inter-year
rolling H-T-A
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Example On-Farm Grain Storage Costs _at_ 3.00 Corn
for 8 mo.

• Extra drying to 13 Moisture (1.25/pt.)
  0.025 x 3.00 0.075
• Extra drying cost
• _at_ 2 points moisture 0.016
• Interest on harvest value of corn
• _at_ 1.5 6.5 0.10/12 x 8 0.066
• Handling cost
  0.025
• Misc.
  0.005
• Quality deterioration, 1 0.030
• Total
  0.217

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Example Off-Farm Grain Storage Costs _at_ 3.00 Corn
for 8 mo.

• Extra drying to 14 Moisture (1.35/pt.)
  0.0135 x 3.00 0.041
• Extra drying cost
• _at_ 1 points moisture 0.025
• Interest on harvest value of corn
• _at_ 1.5 6.5 0.10/12 x 8 0.066
• Handling cost
  0.000
• Elevator storage chg. 0.12 0.02 0.220
• Quality deterioration, 0 0.000
• Total
  0.352

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Iowa Net un-priced Off-Farm Storage Returns,
1981-82 to 2002-03 Corn
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Iowa Un-Priced Off-Farm Storage Returns, 1981-82
to 2002-03 Beans
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Iowa Net Hedged Off-Farm Storage Returns,
1981-82 to 2002-03 Corn
0.03
Yearly Avg all months
0.12
Yearly Std
0.04
Yearly Avg t June
0.12
Yearly STD to June
0.04
Yearly Avg to May
0.11
Yearly STD to May
0.04
Yearly avg to April
0.11
Yearly STD to April
0.03
Yearly Avg to March
0.11
Yearly STD to March
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Iowa Hedged Off-Farm Storage Returns, 1981-82
to 2002-03 Beans
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Grade Distribution--Quiz

• 90 17.1
• 80-90 28.6
• 68-79 37.1
• Below 68 17.1

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Traditional Grain Contracts

• Forward contract locks in price level, basis,
  spreads
• Hedge to Arrive does not lock in Basis
• Non-roll
• Intra-year roll
• Dec. 2.15
• Mar. 2.21
• May 2.28
• July 2.36

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Traditional Grain Contracts

• Hedge to Arrive does not lock in Basis
• Intra-year roll 1995-96
• June 22, 1995 May 10, 1996
• May 5.17
• July 4.99
• Sept. 4.32
• Dec. 2.89 c. 3.66
• HTA placed in Dec. 95 futures
• At harvest, price is 3.37
• Decision Roll to May contract _at_ 3.42
• Later, roll May to Dec. to price next yrs. crop

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Traditional Grain Contracts

• Hedge to Arrive, inter year roll
• May 96, Decides to roll to Dec. futures
• May futures 5.17, Dec. 3.66
• Loss on original Dec. contract -0.48
• Loss on May futures -1.75
• Total
  -2.23
• Net hedge Dec. fut. 3.66
• Less loss -2.23
• Less basis -.40
• Net price 1.03
  

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Traditional Grain Contracts

• Basis Contract
• Price is futures price less pre-determined
  basis
• Purpose lock in a favorable basis, but allow for
  possible higher prices later

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