What price do you need in June to come out ahead of selling today? A lender renewing an operating loan asks that of a corn farmer in Indiana who wants to keep 50,000 bushels in the bins. The farmer can answer with one number worked out before deciding: today’s cash price plus storage and interest for the months held, divided by the share of the grain left after weight loss. In the example, that price to beat is $4.41 a bushel. With the loan still open, a sale at $4.35 leaves the farmer $2,850 worse off than selling at $4.00 today. Write the number on one dated page and compare every bid with it.
What does waiting cost besides the storage bill?
Three things, and only the first arrives as a bill. Storage is the elevator’s charge, or the farmer’s own cost of running the bins. Interest is what the money from selling today would have earned or saved. Weight lost is grain that shrinks in the bin and is no longer there to sell.
Janzen, writing for the University of Illinois in September 2024, names the second cost as “the opportunity cost of giving up revenue from grain sales at harvest”. Many farmers never subtract it, because no one sends an invoice for it.
The missing weight would have been sold on the sale date, so value it at the sale price of $4.35, not at today’s $4.00. That is the stricter choice: today’s lower price would make waiting look cheaper. Take the percentage lost from your own scale tickets for that lot, grain in minus grain out. A grade discount at the elevator is a separate cost, and this calculation does not include it.
Which interest rate goes into the calculation?
The rate the money from this lot would earn or save if the grain were sold today. Janzen priced the same decision at two rates: 4.5% a year, “roughly equal to the current return on high-yielding savings accounts”, and 8.5%, “roughly the current interest rate on new farm operating loans”. Both belong to 2024: use your lender’s rate and your own deposit rate.
Run the two rates on the example lot and the answer changes sides. At 8.5%, waiting ends 6 cents a bushel worse than selling today. At 4.5%, which is 0.375% a month, interest falls to $0.075, the price to beat falls to $4.34, and waiting ends 1 cent a bushel better, about $490 on 50,000 bushels.
While the operating loan is open, cash from this lot would pay it down, so the loan rate applies. Paying part of the loan changes nothing, because the rest of the balance still charges it. Once other money clears the loan, the cash would sit in a deposit and the lower rate applies. If the sale of this lot is what would clear the loan, the loan rate applies to all of it.
A farmer with their own bins gets no storage bill and still pays this interest. Hurt, of Purdue, counts it for that case too: “For on-farm storage, only weekly interest costs are subtracted as a cost of storage”.
How many months can the wait run?
As many as the expected gain can pay for. The gain is the sale price after weight loss minus today’s price: $4.35 times 0.985 is $4.28, minus $4.00, leaves $0.285 a bushel. Each month then costs $0.04 of storage plus $0.028 of interest, $0.068 at the loan rate. Divide $0.285 by $0.068 and the wait can run 4.2 months. At the deposit rate a month costs $0.055, and the wait can run 5.2 months.
The farmer planned five months, which is past the limit at the loan rate and inside it at the deposit rate. Write the number of months beside the price to beat. A longer wait raises the price to beat, so two farmers with the same corn and the same expected price can land on opposite sides, one planning three months and the other nine.
Enter the weight loss once, for the whole wait. For a longer wait, estimate the loss again instead of reusing the same percentage.
Is the market paying you to wait, and is the payment locked?
Buyers who need grain later in the year pay someone to hold it. Part of that payment shows in the basis: the local cash price minus the futures price, which is the exchange price for delivery in a later month. Dhuyvetter, of Kansas State University, wrote that the improvement in basis from harvest to the July contract “represents the market’s payment for storing soybeans”. A wide or weak basis at harvest, he adds, encourages storage. Set that payment against the $0.068 a month the example lot costs.
The price gap between two futures months is the carry, the market’s pay for storing grain from one to the other. Janzen calls it guaranteed, but only for whoever sells for later delivery now: “you can’t capture the carry unless you sell the carry”. Grain held with no price attached is, in his words, “simply speculating” on a higher price later.
The $0.407 is the same in every case. Janzen notes the costs of storage are “incurred whether the commodity holder captures the carry or is speculating on unpriced inventory”. So write on the sheet which case the lot is in. Sold for later delivery at a fixed price: the question is whether that price beats a market you cannot see yet, which is locking the price now worth it works out. Hedged, meaning sold on the futures market while the grain stays in the bin: the basis is still open, and what price you keep after hedging follows it to delivery. Unpriced: holding is a bet on the price, and you write that down.
The expected price is the weakest figure on the page. A usual way to set it is the futures price for the month you plan to sell plus the basis you expect, taken from a price record with a source. Past averages depend on the years. In Hurt’s 30-year study of corn storage returns, average returns for the 2008 to 2017 crops “have been lower than the longer periods”. He ties this to corn prices trending lower in those years and not to storage paying less over time. Keep the price to beat fixed and revise the expected price.
What goes on the sheet first, and how long does it take?
Allow an hour for the first lot, with the loan statement, the elevator’s rate sheet and the scale tickets on the desk. The sell now or store calculator does the arithmetic and prints the decision sheet; the steps follow its order.
If waiting comes out worse than selling today, the lot calls for a sale or for a written reason other than price. Examples are a delivery window already committed and a truck line at the elevator. Janzen notes that profitable storage “generally happens when the firm has available capacity both in terms of its physical space and financial ability to defer revenue”. If waiting comes out better, the way to collect the gain is to price the later sale now.
The price to beat is not the break-even price, which is measured against what the crop cost to grow. It is measured against selling today. More articles on selling grain are in the marketing section of the library, and deciding once, on paper, then checking on a set date is one concrete piece of running a farm as a business.