Purdue News

September 24, 1999 On-farm storage key to profitability, expert says WEST LAFAYETTE, Ind. – If you can hang on to your corn and soybeans for a while after the harvest, it'll probably be worth it, according to Purdue University agricultural economist Chris Hurt. Hurt and other Purdue economists are meeting with farmers at various Indiana sites, offering them market-strategy alternatives to help them get the most for the crop they're now harvesting. The strategies Hurt offers are based on his own price projections. "I expect corn prices in Indiana to average around $2 to $2.05 for the year overall, and at harvest to be at around $1.70 to $1.80," he said. "If this price pattern does develop, it means that loan deficiency payments of 20 cents to 25 cents will be available around the time of harvest. But by winter, cash prices should recover to the $2.15 to $2.25 range." Loan deficiency payments (LDP) are paid by the government to farmers on a per-bushel basis, based on the difference between their county's daily "posted county price" and the county's loan level. "I suggest that farmers do their LDPs around harvest, because the deficiency payments could be small, or nonexistent, into the winter," Hurt said. If Hurt's price scenario is realized, farmers who get a 20-cents-per-bushel LDP at harvest, but store their corn until cash prices rise to $2.20, could get up to $2.40 per bushel, minus the cost of on-farm storage, which he pegs at about 7 cents per bushel. "Those who need to keep marketing risk to a minimum," Hurt advised, "should consider doing the LDP at harvest, then forward-contracting their corn for delivery from late winter through summer. Returns from on-farm storage should be about 20 to 25 cents per bushel. "This strategy earns the county loan level plus the return from storage, or about $2.16 per bushel; it assumes a county loan of $1.93 and a 23-cent net return on storage." Hurt said those who want to add to their upside price potential while still limiting their risk can follow this strategy but also buy a call option. Farmers who have to pay for storage off the farm will likely find the cost prohibitive, he said. Marketing soybeans presents an even bigger challenge because of a world glut that Hurt expects to continue for the foreseeable future. "In Indiana, harvest-time prices are expected to be in the $4.40 to $4.70 range, with prices pushing back to near $5 per bushel in November and early December," Hurt said. "At harvest, LDPs could be from 60 cents to as much as 90 cents per bushel." If Hurt's price expectations play out, a farmer who collects a 70-cent LDP at harvest and stores soybeans for 45 to 90 days would earn $5.70 per bushel if beans rise to a $5 cash price. However, there is no guarantee prices will rise, so this strategy carries some downside price risk, he said. "A lower risk strategy would be to collect the LDP at harvest and store with the beans forward-priced for as far into the future as the higher bean price will cover the cost of storage," Hurt said. "Returns for on-farm storage are expected to be about 15 to 20 cents per bushel." This strategy generates the county loan, which averages about $5.40, plus about 17 cents for storage, or $5.57 per bushel. "Those who want the opportunity for higher prices should consider buying calls," he added. "And those who expect to store beans until next summer should consider putting them under loan. "Soybeans do have upside price opportunity, but they also have large downside risk. Farmers need to be sure they consider both in their marketing plans." The schedule for the free agricultural outlook meetings now under way throughout Indiana is available at the Purdue Agriculture News Web site, or call toll-free (888) EXT-INFO. Source: Chris Hurt, (765) 494-4273, hurtc@purdue.edu Writer: Amy H. Raley, (765) 494-6682, ahr@aes.purdue.edu Purdue News Service: (765) 494-2096; purduenews@purdue.edu To the Purdue News and Photos Page