1 BASIC MARKETING Annie’s Project April 12, 2007

Slide 1Marketing Risks
Marketing is the part of business that transforms production activities into financial success.
Unanticipated forces can lead to dramatic changes in crop and livestock prices.
When these forces are understood, they become important considerations for the skilled marketer.
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Personal Considerations in Marketing: Marketing agricultural products involves information, objectivity, attitude and skill.
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Minimum Price Contract
Farmers operate in two related marketing systems—cash and futures
The cash market is with the end user for delivery now or on a forward contract. The result is delivery of grain produced.
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Cash bid is what is paid for grain delivered today
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and the futures price.
CASH minus FUTURES = BASIS
Basis
End User Profit
Trading level at CBOT
4-11-07 closing cash bid at MaxYield Cooperative’s West Bend locations is $3.60 ¾ May futures less $.33 ¾ basis equals $3.27
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Forward Contract
We have looked at the cash market bid for immediate delivery
Elevators also establish forward contract bids for delivery into the future such as MaxYield Cooperative’s Algona Branch $3.35 for June-July and $3.39 for October or New Crop
These bids are good from market close on 4/11/07 until market opens on April 12
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Futures Contract
A contract traded on a futures exchange for the delivery of a specified commodity at a future time. The contract specifies the item to be delivered and the terms and conditions of delivery.
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Corn Futures Contract
CBOT corn futures contract for 5000 bushels can be sold or purchased for an initial margin of $1000 which must be deposited with broker in your account
Value of the contract is 5000*3.87 ¾ or $19,387.50
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Soybean Futures Contract
CBOT soybean futures contract for 5000 bushels can be sold or purchased for an initial margin of $1000 which must be deposited with broker in your account
Value of the contract is 5000*7.91 ¾ or $39587.50
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Futures Contract
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40,000 pounds (216 – 185# hog carcasses)
Contract Months—Feb Apr, May, Jun, Jul, Aug, Oct, and Dec
Contract expires on the last business day of the month
Contract is cash settled
Minimum movement $.00025/lb = $10/contract
Maximum movement $.02/lb = $800/contract
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The live cattle futures contract is denoted as LC and is also offered by the Chicago Mercantile Exchange.
The LC contract is for 40,000 pounds, which 33 head of cattle averaging 1200 pounds. There are 6 contract months from which to choose. All of these contracts months expire on the last business day of the month.
Live cattle futures are only settled by physical delivery to a location (point) specified by the CME.
The minimum movement is $.00025/lb which is $10/contract ($.00025/lb x 40,000 pounds).
The maximum movement is $.03/lb which is $1200/contract ($.03/lb x 40,000 pounds).
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Contract Months—Feb, Apr, Jun, Aug, Oct, Dec
Contract expires on the last business day of the month
Contract is settled by physical delivery of cattle
Minimum movement $.00025/lb = $10/contract
Maximum movement $.03/lb = $1200/contract
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The live cattle futures contract is denoted as LC and is also offered by the Chicago Mercantile Exchange.
The LC contract is for 40,000 pounds, which 33 head of cattle averaging 1200 pounds. There are 6 contract months from which to choose. All of these contracts months expire on the last business day of the month.
Live cattle futures are only settled by physical delivery to a location (point) specified by the CME.
The minimum movement is $.00025/lb which is $10/contract ($.00025/lb x 40,000 pounds).
The maximum movement is $.03/lb which is $1200/contract ($.03/lb x 40,000 pounds).
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Hedging defined:
Taking an equal and opposite position in the futures market. Have cattle in feedlot now to sell in June, sell June Futures now.
Taking an action now in the futures market that you will later in the cash market.
will sell cash corn later --> sell futures now
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Hedging
Establishing price level by selling a CBOT futures contract through a broker
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Est.: -0.40
Sell Cash Corn @ $3.00
= $3.60 cash price
= $3.60 cash price.
Est. -0.40
= $3.60 cash price
= $3.60 cash price.
Est.: -0.40
= $3.50 cash price
= $3.50 cash price.
Buy a put option
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Minimum-price tools
Upside potential
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Exact price is known (basis is fixed)
Contract can be for any bushel amount, not just 5,000 bushel increments
No brokerage fee, margin accounts or margin calls
Ends in delivery
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*
Average price is usually higher compared to forward contracting
Not locked into delivery, can be rolled into a storage hedge to capture market carry after harvest
Contract in units of 5,000 bushels
Requires margin account and must provide margin money as market fluctuates (margin calls)
Must buy futures to exit the position
Basis risk
Sell futures – What is my expected price?
futures price (when sold) + expected harvest basis – brokerage fees = expected price
$7.92 + (-0.50) - 0.01
Just like selling futures except you work with local elevator
Contract can be for any bushel amount, not just 5,000 bushel increments
No brokerage fee, margin accounts or margin calls
Most elevators let you lock-in the basis sometime during the contract
May be rolled into storage hedge (terms differ)
Basis risk
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*
Futures price (when sold) + expected harvest basis = expected price
$7.92 + (-0.50)
Futures price is established when contract is made with elevator.
Can contract for any bushel amount.
Basis is locked in before dates specified in contract.
Margin (to specified limit) is covered by elevator.
Grain is delivered to elevator specified in contract.
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AND
Options on Ag. Futures Terms
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Buy a put option
Corn example: Dec futures trading at $3.88, a put at $3.90 strike price has 31 cent premium
What is the minimum price?
put strike price + expected basis - put premium - brokerage fee = minimum price
$3.90 + (-0.30) - 0.31 - 0.01
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*
Buy a put option
Soybean example: Nov futures trading at $7.92, a put at $7.80 strike price has 44 cent premium
put strike price + expected basis - put premium - brokerage fee = minimum price
$7.80 + (-0.60) - 0.44 - 0.01
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*
Buyer has a price floor which is equal to:
FC Price - Premium - Brokerage fees
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Forward contract AND buy a call option
Corn example: Forward contract price is $3.41, Dec futures trading at $3.88, a call at $3.90 strike price has a 31 cent premium
forward contract price – call premium – brokerage fee = minimum price
$3.41 - 0.31 - 0.01
Forward contract AND buy a call option
Soybean example: Forward contract price is $7.34, Nov futures trading at $7.92, a call at $7.80 strike price has a 44 cent premium
forward contract price – call premium – brokerage fee = minimum price
$7.34 - 0.44 - 0.01
Buyer has a price floor which is equal to:
Strike Price - Premium +/- Basis estimate - Brokerage fees
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*
corn,
Strike Price + Premium +/- Basis est. = Price Ceiling
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Why a Farmer might buy options:
Buy a put --> need price protection (floor) for crops or livestock.
Buy a call --> need price protection (ceiling) on feed requirements.
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Scale in Selling
One way to approach marketing is to have a plan to scale in sell smaller increments rather than selling huge amounts at the objective.
Example: (25,000 bu., objective $2.50)
Sell 5000 bu. @ $2.30.
Sell 5000 bu. @ $2.40
Sell 5000 bu. @ $2.50
Sell 5000 bu. @ $2.60
Sell 5000 bu. @ $2.70
Made possible by revenue type crop insurance
Recommended to not sell more than crop insurance coverage
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Objective: Buy crop insurance to protect my production risk, and have 75% of my anticipated corn crop (based on APH yield) priced by late May.
Price 10,000 bushels at $2.10 cash price ($2.50 Dec. futures) using forward contract/futures hedge/futures fixed contract.
Price 10,000 bushels at $2.22c/2.62f, or by Jan 25, using a fixed-price contract.
Price 15,000 bushels at $2.34c/2.74f, or by Mar 25, using a fixed-price contract.
Price 10,000 bushels at $2.46c/2.86f, or by Apr 7, consider options/trend system.
Price 10,000 bushels at $2.70c/3.10f, or by May 23, consider options/trend system.
Plan starts on November 1, 2004. Earlier sales will be made at a 15 cent premium to price targets noted above.
Ignore decision dates and make no sale if prices are lower than $2.10 local cash price/$2.50 December futures.
Exit all options positions by mid-September.
Tillman Farm
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Pre-Harvest Corn Marketing Plan
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Q: Are there any reliable seasonal price patterns after harvest?
A: Yes! Cash corn prices tend to rise from harvest to late spring.
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On average from October to May, the price of corn rises 26 cents per bushel. But averages are deceiving! Since 1980, the price rise from Oct to May has been as high as $1.31 (1995/96) and as low as negative 23 cents in 1996/97 and 2004/2005.
Chart1
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
216.44
218.64
223.32
226.32
228.76
235.32
239.72
242.36
240.72
236.2
226.64
218.12
0
204
209
214
218
221
225
225
225
219
29
1974
1
0
0
0
0
0
1
0
1
0
1
1975
0
0
0
1
1
1
1
0
1
1
1
0
1976
1
0
0
1
1
1
0
0
0
0
0
0
1977
0
1
1
1
0
1
1
1
1
0
0
0
1978
0
0
1
1
0
1
1
1
1
1
1
0
1979
0
0
0
1
1
0
1
1
1
1
1
1
1980
1
1
1
1
1
0
1
1
0
0
0
0
1981
0
0
0
0
1
0
1
1
0
1
0
0
1982
0
0
0
1
1
1
1
1
1
1
1
1
1983
1
0
0
0
0
0
1
1
1
1
0
0
1984
0
0
0
0
1
0
1
1
0
0
0
0
1985
0
0
1
1
1
0
0
0
1
1
0
0
1986
0
0
1
1
0
0
1
0
1
0
0
0
1987
1
1
0
1
1
1
1
1
1
1
1
1
1988
0
0
0
1
1
0
0
1
0
1
0
0
1989
1
0
1
1
0
1
1
1
1
1
0
0
1990
0
0
0
0
1
1
1
1
0
0
0
1
1991
0
0
1
0
1
1
1
1
1
1
0
0
1992
0
0
0
0
1
0
1
1
0
0
1
0
1993
1
1
1
1
1
1
0
0
0
1
0
0
1994
0
1
0
1
1
1
1
1
1
1
1
0
1995
1
1
1
1
1
1
1
1
1
1
1
0
1996
0
0
0
0
0
0
1
0
0
0
0
0
1997
0
1
0
0
1
1
0
0
0
0
0
0
1998
0
1
1
0
1
1
0
1
0
0
0
0
1999
0
0
1
1
1
1
1
1
1
0
0
0
2000
1
1
1
1
1
0
0
1
0
0
1
1
2001
0
0
1
1
1
0
1
0
1
1
1
1
2002
1
0
0
1
1
0
1
1
1
0
0
0
2003
1
0
1
1
1
1
1
1
0
0
0
0
10
10
13
19
22
15
21
21
16
16
10
7
Percent of years that the current month average price exceeds the previous month.
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
34%
34%
45%
66%
76%
52%
72%
72%
55%
55%
34%
24%
Post Harvest (October-May) Changes in Minnesota Cash Corn Prices, 1980-2003
MN Oct-Sep Monthly Corn
Post Harvest (October-May) Changes in Minnesota Cash Soybean Prices, 1974-2002
1
1
1
1
1
Monthly Soybean Prices
Oct-Sep Soybean Prices
cents per bushel
Monthly Wheat Prices
0
0
0
0
SD Corn
SD Soybeans
SD wheat
1980 forward
IOWA CORN
May>Oct
Jul>Oct
Jul +15
1
1
1
1
1
1
1
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
209.16
209.8
213.44
217.52
219.84
226.28
231.08
233.24
234.48
230.04
219.72
211.8
Oct
Oct
Oct
Nov
Nov
Nov
Dec
Dec
Dec
Jan
Jan
Jan
Feb
Feb
Feb
Mar
Mar
Mar
Apr
Apr
Apr
May
May
May
Jun
Jun
Jun
Jul
Jul
Jul
Aug
Aug
Aug
Sep
Sep
Sep
0
0
8
-145
1.6666666667
9.6666666667
-145
3.3333333333
11.3333333333
-145
5
13
-145
6.6666666667
14.6666666667
-145
8.3333333333
16.3333333333
-145
10
18
-145
11.6666666667
19.6666666667
-145
13.3333333333
21.3333333333
-145
15
23
-145
16.6666666667
24.6666666667
-145
18.3333333333
26.3333333333
0
0
0
0
0
0
0
0
0
0
0
0
Cash Price Increases from October to May
Minnesota Soybeans
<0 cents
<30 cents
<50 cents
>50 cents
> 80 cents
<0 cents
0-30 cents
30-50 cents
50-80 cents
> 80 cents
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
max
1980-2003
7
11
14
10
6
7
4
3
4
6
24
1974-2003
29
years
1974
730
815
750
710
635
575
519
560
497
486
517
578
815
(318)
1
1
1
0
0
29%
17%
13%
17%
25%
OND
JFM
AMJ
JAS
1975
527
494
450
433
428
435
437
441
479
617
668
601
668
(15)
1
1
1
0
0
6
1
11
11
1976
668
587
608
651
670
696
799
911
919
829
660
540
919
332
0
0
0
1
1
21%
3%
38%
38%
1977
501
536
556
560
543
530
607
653
661
645
629
609
661
125
0
0
0
1
1
1978
603
604
614
626
642
680
696
686
691
718
716
674
718
87
0
0
0
1
1
1979
647
614
611
585
587
583
541
541
553
580
646
695
724
1
(61)
1
1
1
0
0
1980
724
733
805
744
756
694
731
770
738
700
704
659
805
0
5
0
1
1
0
0
1981
610
586
591
576
579
567
573
599
612
598
580
545
612
0
26
0
1
1
0
0
1982
513
513
512
518
528
545
565
589
594
579
618
742
805
1
81
0
0
0
1
1
1983
805
785
775
752
780
704
724
774
794
795
698
640
795
0
9
0
1
1
0
0
1984
592
590
590
563
553
552
560
569
554
550
530
499
590
0
(36)
1
1
1
0
0
1985
492
472
482
494
502
506
511
510
513
509
498
488
513
0
41
0
0
1
0
0
1986
466
439
455
453
452
461
461
478
508
509
519
492
519
0
69
0
0
0
1
0
1987
482
486
574
537
548
572
581
619
678
777
838
814
838
0
192
0
0
0
1
1
1988
781
747
734
722
762
711
730
715
703
702
660
586
762
0
(44)
1
1
1
0
0
1989
550
543
538
534
529
530
548
568
578
578
587
580
587
0
35
0
0
1
0
0
1990
581
576
560
551
549
545
556
560
556
543
523
551
576
1
(20)
1
1
1
0
0
1991
549
539
531
527
524
539
542
552
569
579
547
529
579
0
30
0
1
1
0
0
1992
526
527
521
531
544
538
548
556
562
568
638
635
638
0
35
0
0
1
0
0
1993
590
586
608
645
656
648
646
638
657
650
570
544
657
0
71
0
0
0
1
0
1994
547
532
517
522
519
518
524
538
532
548
572
561
574
1
0
1
1
1
0
0
1995
574
586
609
641
655
669
679
719
737
717
739
759
759
0
151
0
0
0
1
1
1996
755
684
669
664
686
717
779
808
823
822
747
702
823
0
139
0
0
0
1
1
1997
648
627
661
668
639
640
621
614
616
598
595
526
668
0
(11)
1
1
1
0
0
1998
496
497
518
509
501
452
437
445
430
430
400
419
518
1
(67)
1
1
1
0
0
1999
437
424
418
416
432
455
471
483
503
477
439
428
503
0
79
0
0
0
1
0
2000
441
426
430
459
456
428
427
412
412
428
457
463
463
0
(14)
1
1
1
0
0
2001
432
394
396
403
401
400
416
428
446
475
516
532
532
0
52
0
0
0
1
0
2002
519
509
527
533
539
546
547
568
594
593
573
562
594
1
85
0
0
0
1
1
2003
582
624
699
706
753
816
905
966
964
918
838
0
0
0
1
1
2004
590
573
556
553
545
596
613
626
648
645
604
1980-2002
570
557
566
564
569
562
573
587
596
597
589
576
6
39
1974-2002
579
567
573
570
572
567
578
597
604
607
599
585
1974-2003
36
stdev
106
0
535
546
548
547
555
565
575
574
561
29
1974
1
0
0
0
0
0
1
0
0
1
1
1975
0
0
0
0
0
1
1
1
1
1
1
0
1976
1
0
1
1
1
1
1
1
1
0
0
0
1977
0
1
1
1
0
0
1
1
1
0
0
0
1978
0
1
1
1
1
1
1
0
1
1
0
0
1979
0
0
0
0
1
0
0
0
1
1
1
1
1980
1
1
1
0
1
0
1
1
0
0
1
0
1981
0
0
1
0
1
0
1
1
1
0
0
0
1982
0
0
0
1
1
1
1
1
1
0
1
1
1983
1
0
0
0
1
0
1
1
1
1
0
0
1984
0
0
0
0
0
0
1
1
0
0
0
0
1985
0
0
1
1
1
1
1
0
1
0
0
0
1986
0
0
1
0
0
1
0
1
1
1
1
0
1987
0
1
1
0
1
1
1
1
1
1
1
0
1988
0
0
0
0
1
0
1
0
0
0
0
0
1989
0
0
0
0
0
1
1
1
1
0
1
0
1990
1
0
0
0
0
0
1
1
0
0
0
1
1991
0
0
0
0
0
1
1
1
1
1
0
0
1992
0
1
0
1
1
0
1
1
1
1
1
0
1993
0
0
1
1
1
0
0
0
1
0
0
0
1994
1
0
0
1
0
0
1
1
0
1
1
0
1995
1
1
1
1
1
1
1
1
1
0
1
1
1996
0
0
0
0
1
1
1
1
1
0
0
0
1997
0
0
1
1
0
1
0
0
1
0
0
0
1998
0
1
1
0
0
0
0
1
0
0
0
1
1999
1
0
0
0
1
1
1
1
1
0
0
0
2000
1
0
1
1
0
0
0
0
0
1
1
1
2001
0
0
1
1
0
0
1
1
1
1
1
1
2002
0
0
1
1
1
1
1
1
1
0
0
0
2003
1
1
1
1
1
1
1
1
0
0
0
0
9
8
15
13
16
14
22
22
21
11
13
8
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
31%
28%
52%
45%
55%
48%
76%
76%
72%
38%
45%
28%
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
&A
Minnesota Soybeans
<0 cents
<30 cents
<50 cents
>50 cents
> 80 cents
IOWA SOYBEANS
<0 cents
<30 cents
<50 cents
>50 cents
> 80 cents
1
0
0
0
0
0
0
0
0
0
0
0
0
&A
0
0
0
0
0
0
0
0
0
0
0
0
Minnesota Other Spring Wheat
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
max
1980-2003
5
12
14
10
5
5
7
2
5
5
24
1974-2003
29
years
1980
413
400
387
408
429
424
428
427
422
425
418
408
429
0
31
0
0
0
1
0
21%
29%
8%
21%
21%
OND
JFM
AMJ
JAS
1981
398
377
379
384
380
379
374
371
369
376
376
367
384
0
(3)
1
1
1
0
0
6
1
11
11
1982
365
350
346
348
355
342
341
341
363
380
390
390
394
0
44
0
0
0
1
0
21%
3%
38%
38%
1983
394
383
379
380
383
380
375
372
376
386
392
397
397
0
13
0
1
1
0
0
1984
363
359
337
333
343
329
320
330
337
350
345
337
359
0
8
0
1
1
0
0
1985
314
278
278
292
301
323
317
318
326
334
327
252
334
0
49
0
0
0
1
0
1986
229
237
235
233
241
255
256
260
258
254
239
235
260
1
4
0
1
1
0
0
1987
229
223
241
255
257
259
264
274
268
259
290
317
354
1
49
0
0
0
1
0
1988
354
346
368
381
362
375
387
383
401
398
401
396
401
0
33
0
0
0
1
0
1989
378
372
364
363
366
361
360
352
356
354
359
344
372
0
(5)
1
1
1
0
0
1990
311
254
235
234
232
235
239
237
248
261
265
258
265
1
30
0
0
1
0
0
1991
244
250
268
299
322
346
357
392
391
382
383
393
393
0
115
0
0
0
1
1
1992
375
311
303
300
314
319
333
324
332
334
304
301
336
0
1
0
1
1
0
0
1993
336
298
278
319
332
354
342
343
333
334
359
315
359
1
81
0
0
0
1
1
1994
303
317
327
341
345
343
335
332
316
321
351
370
426
1
24
0
0
1
0
0
1995
426
421
426
421
424
450
459
481
472
486
491
531
531
0
65
0
0
0
1
1
1996
518
470
459
427
431
399
403
384
394
408
399
376
470
0
(60)
1
1
1
0
0
1997
354
382
367
348
360
350
340
334
348
343
343
330
382
0
(24)
1
1
1
0
0
1998
311
298
286
318
331
334
322
310
303
297
297
300
334
0
11
0
1
1
0
0
1999
298
286
281
276
289
287
290
280
290
287
294
299
299
0
13
0
1
1
0
0
2000
263
252
265
281
300
304
304
298
298
303
316
303
316
0
51
0
0
0
1
1
2001
286
289
287
297
284
298
284
290
298
304
300
303
335
1
13
0
1
1
0
0
2002
335
376
421
439
444
427
404
379
387
345
363
351
444
0
(58)
1
1
1
0
0
2003
342
351
343
355
361
369
375
382
378
397
394
386
397
0
51
0
0
0
1
1
1980-2003
339
328
328
335
341
343
342
341
344
346
349
344
349
6
22
0
29
1974
0
0
1
1
0
1
0
0
1
0
0
1975
0
0
1
1
0
0
0
0
0
1
0
0
1976
0
0
0
1
1
0
0
0
1
1
1
0
1977
1
0
0
1
1
0
0
0
1
1
1
1
1978
0
0
0
0
1
0
0
1
1
1
0
0
1979
0
0
0
1
1
1
0
1
1
1
0
0
1980
0
1
0
0
1
1
1
1
0
0
0
0
1981
0
0
1
1
1
1
1
1
0
0
1
1
1982
1
0
1
1
0
1
1
0
1
0
1
0
1983
0
0
0
0
1
0
0
0
1
0
1
0
1984
0
0
0
0
0
1
1
0
1
1
1
0
1985
0
1
1
1
1
1
1
1
0
0
1
1
1986
0
0
0
0
1
1
1
0
1
1
0
0
1987
1
0
0
1
1
1
0
1
0
1
1
0
1988
0
1
1
1
1
0
0
0
0
1
1
1
1989
1
0
1
0
1
1
1
1
0
1
1
1
1990
0
0
0
0
1
0
1
0
1
1
0
0
1991
0
1
0
0
1
0
0
0
1
0
0
0
1992
0
0
0
1
1
1
0
0
0
0
0
1
1993
0
0
0
0
1
0
1
0
1
0
1
1
1994
0
0
1
1
1
1
0
0
0
1
1
0
1995
0
1
0
1
0
1
0
1
1
1
0
1
1996
1
1
1
1
1
0
0
0
1
0
1
0
1997
0
1
0
1
1
1
1
1
0
1
0
0
1998
0
0
0
0
0
0
0
0
0
0
0
0
1999
1
0
0
1
1
1
0
0
1
1
1
0
2000
0
0
0
0
0
0
0
0
0
0
0
0
2001
0
0
0
0
0
0
0
0
0
0
0
0
2002
0
0
0
0
0
0
0
0
0
0
0
0
2003
0
0
0
0
0
0
0
0
0
0
0
0
6
7
8
16
21
14
11
9
14
16
14
8
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
21%
24%
28%
55%
72%
48%
38%
31%
48%
55%
48%
28%
0
0
0
0
0
Post Harvest (September-May) Changes in Minnesota Spring Wheat Prices, 1980-2003
0
0
0
0
Minnesota Other Spring Wheat
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
max
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Cash Price Increases from September to May
North Dakota Other Spring Wheat
<0 cents
<14 cents
<30 cents
>30 cents
> 50 cents
1980
3.98
4.16
4.26
4.23
4.24
4.16
4.10
4.22
4.24
4.10
3.97
3.64
4.26
0.26
1
1
0
0
1
0
0
1980-2003
24
years
1981
3.55
3.57
3.70
3.55
3.59
3.56
3.57
3.65
3.66
3.58
3.53
3.44
3.70
0.11
1
1
0
1
1
0
0
JAS
OND
JFM
AMJ
1982
3.42
3.39
3.47
3.35
3.34
3.30
3.52
3.76
3.77
3.77
3.74
3.74
3.77
0.35
1
1
0
0
0
1
0
7
4
2
11
1983
3.65
3.64
3.61
3.44
3.54
3.54
3.63
3.76
3.85
3.83
3.68
3.50
3.85
0.20
1
0
0
0
1
0
0
1984
3.51
3.47
3.48
3.42
3.49
3.49
3.49
3.57
3.56
3.53
3.34
3.09
3.57
0.05
1
0
0
1
1
0
0
1985
3.16
3.34
3.49
3.56
3.54
3.43
3.49
3.59
3.49
2.72
2.33
2.32
3.59
0.33
1
1
0
0
0
1
0
1986
2.31
2.22
2.53
2.51
2.68
2.68
2.64
2.62
2.79
2.54
2.43
2.44
2.79
0.48
1
1
0
0
0
1
0
1987
2.57
2.64
2.67
2.73
2.78
2.77
2.70
2.85
2.95
3.36
3.64
3.73
3.64
0.38
1
1
0
0
0
1
0
1988
3.79
3.78
3.74
3.78
3.87
3.86
3.94
3.89
3.92
3.79
3.82
3.62
3.94
0.13
1
0
0
1
1
0
0
1989
3.49
3.50
3.48
3.53
3.50
3.45
3.39
3.43
3.40
3.27
2.72
2.52
3.53
(0.09)
0
0
1
1
1
0
0
1990
2.35
2.36
2.32
2.32
2.32
2.36
2.44
2.52
2.57
2.51
2.42
2.48
2.57
0.22
1
0
0
0
1
0
0
1991
2.67
2.94
3.17
3.32
3.49
3.78
3.72
3.78
3.83
3.83
3.58
3.09
3.83
1.16
1
1
0
0
0
1
1
1992
3.09
3.11
3.17
3.16
3.23
3.28
3.24
3.27
3.15
3.20
3.52
3.78
3.52
0.06
1
1
0
1
1
0
0
1993
3.58
3.73
3.94
3.96
3.89
4.02
3.87
3.95
3.85
3.59
3.33
3.19
4.02
0.27
1
1
0
0
1
0
0
1994
3.35
3.46
3.42
3.49
3.38
3.24
3.28
3.33
3.50
3.72
4.29
4.18
4.29
0.15
1
1
0
0
1
0
0
1995
4.26
4.48
4.69
4.77
4.67
4.85
4.91
5.31
5.82
5.64
5.29
4.71
5.82
1.56
1
1
0
0
0
1
1
1996
4.36
4.25
3.95
3.84
3.89
3.79
3.83
4.05
3.93
3.63
3.65
3.71
4.36
(0.43)
0
0
1
1
1
0
0
1997
3.61
3.51
3.54
3.50
3.43
3.34
3.44
3.35
3.25
3.26
3.08
2.90
3.61
(0.36)
0
0
1
1
1
0
0
1998
2.77
3.11
3.25
3.20
3.10
3.07
3.02
2.92
2.90
3.00
2.95
2.86
3.25
0.13
1
1
0
1
1
0
0
1999
2.82
2.76
2.93
2.80
2.71
2.84
2.81
2.90
2.93
2.96
2.69
2.51
2.96
0.11
1
1
0
1
1
0
0
2000
2.57
2.77
2.92
2.93
2.91
2.87
2.86
2.91
3.03
2.83
2.69
2.69
3.03
0.46
1
1
0
0
0
1
0
2001
2.65
2.79
2.78
2.83
2.77
2.76
2.75
2.76
2.74
2.90
3.25
3.56
3.25
0.09
1
1
0
1
1
0
0
2002
4.29
4.34
4.03
3.92
3.95
3.76
3.57
3.35
3.47
3.34
3.19
3.35
4.34
(0.82)
0
0
1
1
1
0
0
2003
3.33
3.46
3.62
3.69
3.59
3.79
3.90
3.88
3.94
3.63
3.38
3.33
3.94
0.61
1
1
0
0
0
1
1
2004
3.31
3.28
3.32
3.27
3.50
3.35
2005
20
16
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
3.297
3.366
3.423
3.410
3.413
3.416
3.421
3.484
3.523
3.439
3.355
3.266
0.225
330
337
342
341
341
342
342
348
352
344
335
327
23
0
0
0
0
0
0
0
0
0
0
0
0
Cash Price Increases from September to May
North Dakota Other Spring Wheat
<0 cents
<14 cents
<30 cents
>30 cents
> 50 cents
1980
3.98
4.16
4.26
4.23
4.24
4.16
4.10
4.22
4.24
4.10
3.97
3.64
4.26
0.26
1
1
0
0
1
0
0
1980-2003
24
years
1981
3.55
3.57
3.70
3.55
3.59
3.56
3.57
3.65
3.66
3.58
3.53
3.44
3.70
0.11
1
1
0
1
1
0
0
JAS
OND
JFM
AMJ
1982
3.42
3.39
3.47
3.35
3.34
3.30
3.52
3.76
3.77
3.77
3.74
3.74
3.77
0.35
1
1
0
0
0
1
0
7
4
2
11
1983
3.65
3.64
3.61
3.44
3.54
3.54
3.63
3.76
3.85
3.83
3.68
3.50
3.85
0.20
1
0
0
0
1
0
0
1984
3.51
3.47
3.48
3.42
3.49
3.49
3.49
3.57
3.56
3.53
3.34
3.09
3.57
0.05
1
0
0
1
1
0
0
1985
3.16
3.34
3.49
3.56
3.54
3.43
3.49
3.59
3.49
2.72
2.33
2.32
3.59
0.33
1
1
0
0
0
1
0
1986
2.31
2.22
2.53
2.51
2.68
2.68
2.64
2.62
2.79
2.54
2.43
2.44
2.79
0.48
1
1
0
0
0
1
0
1987
2.57
2.64
2.67
2.73
2.78
2.77
2.70
2.85
2.95
3.36
3.64
3.73
3.64
0.38
1
1
0
0
0
1
0
1988
3.79
3.78
3.74
3.78
3.87
3.86
3.94
3.89
3.92
3.79
3.82
3.62
3.94
0.13
1
0
0
1
1
0
0
1989
3.49
3.50
3.48
3.53
3.50
3.45
3.39
3.43
3.40
3.27
2.72
2.52
3.53
(0.09)
0
0
1
1
1
0
0
1990
2.35
2.36
2.32
2.32
2.32
2.36
2.44
2.52
2.57
2.51
2.42
2.48
2.57
0.22
1
0
0
0
1
0
0
1991
2.67
2.94
3.17
3.32
3.49
3.78
3.72
3.78
3.83
3.83
3.58
3.09
3.83
1.16
1
1
0
0
0
1
1
1992
3.09
3.11
3.17
3.16
3.23
3.28
3.24
3.27
3.15
3.20
3.52
3.78
3.52
0.06
1
1
0
1
1
0
0
1993
3.58
3.73
3.94
3.96
3.89
4.02
3.87
3.95
3.85
3.59
3.33
3.19
4.02
0.27
1
1
0
0
1
0
0
1994
3.35
3.46
3.42
3.49
3.38
3.24
3.28
3.33
3.50
3.72
4.29
4.18
4.29
0.15
1
1
0
0
1
0
0
1995
4.26
4.48
4.69
4.77
4.67
4.85
4.91
5.31
5.82
5.64
5.29
4.71
5.82
1.56
1
1
0
0
0
1
1
1996
4.36
4.25
3.95
3.84
3.89
3.79
3.83
4.05
3.93
3.63
3.65
3.71
4.36
(0.43)
0
0
1
1
1
0
0
1997
3.61
3.51
3.54
3.50
3.43
3.34
3.44
3.35
3.25
3.26
3.08
2.90
3.61
(0.36)
0
0
1
1
1
0
0
1998
2.77
3.11
3.25
3.20
3.10
3.07
3.02
2.92
2.90
3.00
2.95
2.86
3.25
0.13
1
1
0
1
1
0
0
1999
2.82
2.76
2.93
2.80
2.71
2.84
2.81
2.90
2.93
2.96
2.69
2.51
2.96
0.11
1
1
0
1
1
0
0
2000
2.57
2.77
2.92
2.93
2.91
2.87
2.86
2.91
3.03
2.83
2.69
2.69
3.03
0.46
1
1
0
0
0
1
0
2001
2.65
2.79
2.78
2.83
2.77
2.76
2.75
2.76
2.74
2.90
3.25
3.56
3.25
0.09
1
1
0
1
1
0
0
2002
4.29
4.34
4.03
3.92
3.95
3.76
3.57
3.35
3.47
3.34
3.19
3.35
4.34
(0.82)
0
0
1
1
1
0
0
2003
3.33
3.46
3.62
3.69
3.59
3.79
3.90
3.88
3.94
3.63
3.38
3.33
3.94
0.61
1
1
0
0
0
1
1
2004
3.31
3.28
3.32
3.27
3.50
3.35
2005
20
16
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
3.297
3.366
3.423
3.410
3.413
3.416
3.421
3.484
3.523
3.439
3.355
3.266
0.225
330
337
342
341
341
342
342
348
352
344
335
327
23
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A "Download Data" button is available at the bottom of the table
for saving the data from this request
Commodity
Year
State
0
0
0
0
0
0
0
0
0
0
0
0
1980 forward
Crop Year
1
1
1
1
1
1
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Cash Price Increases from October to May
South Dakota Soybeans
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
max
1
0
0
0
0
0
0
0
0
0
0
0
0
&A
South Dakota All Wheat
Jun
Aug
change
4
7
18
10
1980
445
450
483
454
447
446
425
421
433
418
378
362
483
(12)
0
1
1
1
1
0
0
1980-2003
24
years
1980
379
390
11
0
1
0
0
1981
357
356
366
359
356
348
355
354
356
354
346
337
366
(1)
0
1
1
1
1
0
0
JAS
OND
JFM
AMJ
1981
410
364
(46)
0
0
1
1
1982
343
342
350
341
334
334
348
375
383
374
366
374
383
40
1
1
0
0
0
1
1
7
4
2
11
1982
358
344
(14)
0
0
1
0
1983
360
371
359
359
350
351
366
380
389
378
356
352
389
29
1
0
0
0
0
1
1
1983
377
374
(3)
0
0
1
0
1984
348
345
344
338
338
345
347
356
351
342
305
305
356
3
1
0
0
0
0
1
1
1984
383
350
(33)
0
0
1
1
1985
327
337
353
354
360
350
348
360
336
281
226
222
360
9
1
1
0
0
0
1
1
1985
353
309
(44)
0
0
1
1
1986
233
238
247
253
247
240
242
257
261
251
227
235
261
28
1
1
0
0
0
1
1
1986
272
232
(40)
0
0
1
1
1987
241
260
258
260
268
274
254
277
292
326
346
353
346
51
1
1
0
0
0
1
1
1987
254
244
(10)
0
0
1
0
1988
362
360
360
366
375
385
394
394
396
390
375
370
396
34
1
0
0
0
0
1
1
1988
336
373
37
1
1
0
0
1989
362
357
361
366
362
348
339
348
348
332
267
255
366
(14)
0
0
1
1
1
0
0
1989
379
362
(17)
0
0
1
0
1990
246
245
243
240
239
240
249
258
263
254
243
253
263
17
1
0
0
0
0
1
1
1990
327
252
(75)
0
0
1
1
1991
277
304
319
336
353
377
376
365
380
381
333
285
381
103
1
1
0
0
0
1
1
1991
251
248
(3)
0
0
1
0
1992
321
323
333
330
329
331
337
333
314
321
341
289
341
(7)
0
1
1
1
1
0
0
1992
383
309
(74)
0
0
1
1
1993
306
327
359
358
354
337
343
339
359
338
307
324
359
53
1
1
0
0
0
1
1
1993
320
378
58
1
1
0
0
1994
341
371
371
365
353
342
338
341
360
399
436
427
436
19
1
1
0
0
0
1
1
1994
359
319
(40)
0
0
1
1
1995
438
458
469
476
471
485
493
539
610
584
485
439
610
172
1
1
0
0
0
1
1
1995
372
418
46
1
1
0
0
1996
406
400
389
394
383
375
385
401
391
372
344
353
406
(15)
0
0
1
1
1
0
0
1996
564
471
(93)
0
0
1
1
1997
352
346
348
342
341
334
345
334
327
304
275
268
352
(25)
0
0
1
1
1
0
0
1997
363
371
8
0
1
0
0
1998
254
289
311
297
277
277
258
254
251
293
242
253
311
(3)
0
1
1
1
1
0
0
1998
326
290
(36)
0
0
1
1
1999
259
255
265
261
257
268
271
254
273
252
244
261
273
14
1
1
0
0
0
1
1
1999
300
286
(14)
0
0
1
0
2000
248
266
278
277
280
292
290
288
297
293
268
272
297
49
1
1
0
0
0
1
1
2000
296
251
(45)
0
0
1
1
2001
270
285
287
278
275
280
281
280
284
297
337
382
337
14
1
1
0
0
0
1
1
2001
283
269
(14)
0
0
1
0
2002
439
459
448
417
387
382
360
342
347
342
305
324
459
(92)
0
1
1
1
1
0
0
2002
290
356
66
1
1
0
0
2003
324
342
344
362
365
381
379
379
386
374
325
314
386
62
1
1
0
0
0
1
1
2003
334
335
1
0
1
0
0
2004
336
345
353
340
336
347
2004
363
333
(30)
0
0
1
0
2005
16
17
2005
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
327
337
344
341
338
338
338
343
349
344
320
317
22
4.37
South Dakota Other Spring Wheat
<0 cents
<14 cents
<30 cents
>30 cents
> 50 cents
South Dakota Winter Wheat
Seasonal Price Movements in South Dakota All Wheat Prices, 1980-2003
0
0
0
0
0
0
0
0
0
0
0
0
Data source: USDA NASS
Seasonal Price Movements in South Dakota Other Spring Wheat Prices, 1980-2003
0
0
0
0
0
0
0
0
0
0
0
0
*
Post Harvest Seasonal Price Trends
Concerning unpriced grain in the bin, are there any reliable seasonal price patterns after harvest?
cash price = futures price + basis
*
*
Summary: What have we learned about seasonal price patterns after harvest?
cash prices… on average rise, driven by the basis
futures prices… on average flat, but volatile!
basis… improves
*
Carrying Charges and Selling the Carry
Question: How can I better manage post harvest cash price risks while assuring myself a reasonable gain on grain held in storage?
Answer: Sell the carry!
What is the carry?
Carrying charges are the difference between futures delivery months (e.g. December and July)
They speak directly to a critical question in grain markets: To store or not to store?
Let’s explore carrying charges in storable commodities…
*

What determines price differences between delivery months (e.g. December vs. March corn)? Is it expectations?
These price differences reflect market determined storage costs (aka carrying charges). Large carrying charges, where deferred contracts trade at a premium to nearby contracts, are common when free supplies are large.
CBOT Corn Futures: October 12, 2001
Sep. $2.39
July $2.35
May $2.29
March $2.21
Dec. $2.09
*
*

This occurs when when supplies are small - a scarcity of stocks. The market says "we will pay a premium if you deliver now!".
Inverse Carrying Charges: An inverted market represents the opposite of a carrying charge market – deferred contracts trade at a discount to nearby contracts.
CBOT Soybean Futures, Oct 17, 2003
Nov. $7.29
Mar $7.10
May $6.65
Jul $6.50
Aug. $6.27
*
*
*
*
*
What Does it Cost to Store Grain?
On average, cash grain prices rise from harvest into early summer. But do prices rise enough to cover your cost of storage?
What is your cost of storage?
*
*
Commercial storage can be expensive, up to 3.5 cents per month. This does not include the cost of your money.
*
Building new on-farm storage can also be expensive, but many farms have existing storage on the farm.
*
(1) in/out costs
*
insurance, management
* NDSU Extension Service estimates
The in/out costs are incurred if the grain is held one day or one year.
*
Interest expense is the largest piece of your variable storage costs
You could sell your grain at harvest & …
pay off your banker and stop the interest expense
or buy a CD and get paid interest
*
Your interest cost depends on whose money you are using.
Are you a borrower or a saver?
*
Monthly Interest Costs* (cents per bushel)
*assumes $2.50 corn, $6.00 soybeans
Corn
Soybeans
The cost of corn storage from harvest to May (7 months) – two extremes…
Commercial storage and debt?
7 months * 3.5 cents per = 24.5 cents
7 months interest * 1.67 cents per = 11.7 cents Total 36.2 cents
On-farm storage and no debt?
*
*
Most operations probably experience a cost somewhere in the middle
On-farm storage and debt
In/out charge = 8.0 cents
7 months interest * 1.67 cents per = 11.7 cents Total 19.7 cents
*
But do cash prices rise enough to cover your cost of storage?
Average cash price rise, harvest to May
corn: 28 cents
soybeans: 53 cents
*
A Word on Exit Strategies…
Storing unpriced grain is both an opportunity and a risk. What price is enough for you to call your decision to store a success or failure?
What is your exit strategy?
*
*
Price driven exit strategies
Sell all my grain in storage at a price x cents over my harvest price
Sell all my grain in storage at a price x cents under my harvest price (stop the loss)
Use a trailing stop
Timing driven exit strategies
Sell all my grain when the price trend changes from up to down
Sell my grain in regular intervals over a particular time period (i.e. one truck per week over 8 weeks)
Sell by the last half of May
*
*
Do you hold your grain in storage too long?
The case against holding grain beyond mid-summer is so strong that we often quote the “11th Commandment” of grain marketing…
“Thou shall not hold unpriced cash corn in the bin after July 1.” (August 1 for soybeans)
The Peril of Holding Grain Too Long
*
Since 1980, old crop grain held in the bin from July to October would have lost money or made less than 15 cents in*…
22 of 24 years in corn (92%)
20 of 24 years in soybeans (83%)
*USDA/NASS data on Iowa monthly average corn and soybean prices.
*
*
What drives prices lower from summer to harvest? Basis!
“Thou shall not hold unpriced cash corn in the bin after July 1.” (August 1 for soybeans)
The 11th Commandment can be seen as the ultimate exit strategy!
*
Objective: Seek strategies that offer a price higher than the loan rate. Hold no unpriced corn beyond July 1, 2007.
65,000 bushels: Place in storage and sell the carry with July futures. Exit plan: Unwind my storage hedge when the cash basis narrows to 30 under July futures, or by the first week of June.
19,000 bushels: Place in storage for later sale. Exit plan: Sell 6,000 bushels @ $2.80, 7,000 @ $3.05, and the last 6,000 @ $3.30. Bushels unsold at the end of April will be sold in equal increments in May and June. Use 15 cent trailing stop to make sales if market reverses trend.
Corn: 2006 Post-Harvest Marketing Plan
(assumes no pre-harvest marketing)
*
Objective: Seek strategies that offer a price higher than the loan rate. Hold no unpriced beans beyond August 1, 2007.
10,000 bushels: Place in storage and sell the carry with July futures. Exit plan: Unwind my storage hedge when the cash basis narrows to 40 under July futures, or by the first week of June.
15,000 bushels: Take the loan and place in storage for later sale. Exit plan: Sell 5,000 bushels @ $5.70, 5,000 @ $6.00, and the last 5,000 @$6.30. Bushels unsold at the end of April will be sold in equal increments in May, June, and July. The loan rate is my downside protection.
Soybeans: 2006 Post-Harvest Marketing Plan
(assumes no pre-harvest marketing)
*
Tillman Farm
*
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Documents

1 BASIC MARKETING Annie’s Project April 12, 2007