20 March 26, 2015 2015 Logan County Farm Outlook Magazine Lincoln Daily News.com
T
he business of farming is a much more
complicated beast than it was in the days
of our grandfathers, and even our fathers.
oday, in order to be profitable even in a very good
harvest year, the grain producer considers several
price protection options.
For some farmers, this includes hedging on ‘the
Board.’ In the best case scenario, one buys cheap
corn on the board at harvest, sells it at a higher
price well after harvest, then sells the cash crop at
current market value. The concept is that the net
gains on the board will supplement the cash price
and increase profits considerably. However, this can
easily backfire if crop prices don’t raise on the board
and cash prices fall.
In “playing” the markets, it is key that the producer
have constant contact with their broker. He or she
should have sufficient cash flow to counter margin
calls, and absorb the cost of being in a buy position
that creates a net loss.
For some, the better way to manage profitability is
to hedge through storage. This too requires having
cash flow to keep the farm running while waiting for
the best time to sell.
Grain storage can give the producer the time needed
to examine the markets and sell at what is hopefully
the highest possible dollar amount, after harvest.
Many is the time that this higher price will come
in the heart of winter, January, and February, and
sometimes as is the case this year, late December.
On-the-farm storage has several advantages during
harvest. Trucking costs can be reduced because the
trip to the elevator is eliminated. There is no driving
time to the elevator, and no long waits in line, eating
up payroll.
There are also some drawbacks. Grain bins take
up space on the farm and cost money to build and
maintain. Dryers utilize LP, and electricity for fans
and stir-ators. It takes a designated tractor to keep
auguring equipment moving. And finally, there are
safety concerns when storing crops on the farm.
Continued to page 22
Using
storage as a hedge
