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Harvest Storage Decisions · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_01: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_01: If you want a deep dive into the ag markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_01: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_01: This is your host, Mike Minor.
• 0:22
  SPEAKER_01: Let's get started.
• 0:24
  SPEAKER_01: Today is September 8th.
• 0:25
  SPEAKER_01: We're doing the podcast a little bit early today.
• 0:28
  SPEAKER_01: We got some events going on in Laverne here tomorrow afternoon.
• 0:32
  SPEAKER_01: So please, if you're around the area, please come over to that.
• 0:36
  SPEAKER_01: We've got uh Brian coming from the NPPC.
• 0:39
  SPEAKER_01: That should be a great event, Pat.
• 0:41
  SPEAKER_01: Anything you want to plug in on that?
• 0:42
  SPEAKER_00: Yeah, 1130 tomorrow, Walnut Bush Farms, 1183, 131st Street.
• 0:47
  SPEAKER_00: Uh uh look it up on our website uh or the invite that we sent around, but looking forward to uh seeing you tomorrow if it works out in your close to Laverne area.
• 0:55
  SPEAKER_01: For sure.
• 0:56
  SPEAKER_01: Well, today we're gonna talk a little bit about uh storage versus selling decisions and uh some of the impacts we've seen this year that we think could carry on to most years as well uh when talking about managing your space like an elevator pat.
• 1:10
  SPEAKER_01: So let's get started and uh what kind of layout would you like to talk about this in today?
• 1:15
  SPEAKER_00: Yeah, so first of all, just kind of kind of setting the setting the table for this discussion as we get close to harvest time here in the in uh the corn belt, um, it's appropriate to be having uh to be making these decisions as it relates to what type of space allocation that you're that you're going to do at home or how are you going to utilize your bin space at home.
• 1:39
  SPEAKER_00: And I tell you, I I spent uh the first ten years of my career uh working in the grain elevator industry for Cargill and and uh uh and grain elevator management as well as green merchandising and and spent um a fair amount of that time making these types of decisions for Cargill and and uh and and making the what we believe to be the right decisions as it relates to merchandising and and maximizing the value of the investment that you've made on space.
• 2:08
  SPEAKER_00: And so uh when I when I left Cargill initially uh uh back in 2001, I went to work for a company called Advanced Trading based out of Bloomington, Illinois.
• 2:19
  SPEAKER_00: And that was one of the big uh talking points that we engaged with with our grain clients uh as it relates to separating this decision, the decision-making process between when am I going to hedge grain and how am I going to get a return in my space?
• 2:35
  SPEAKER_00: It's two completely separate and different discussions and decisions.
• 2:39
  SPEAKER_00: And so uh for the first part of my risk management career, if I could call it call it that, uh we we spent a had a pretty significant effort uh put forth in terms of of the education piece of this as it relates to merchandising and basis management and return on space investment.
• 2:59
  SPEAKER_00: And so um as we uh again work into the eve of harvest here, it's a good idea to uh uh engage uh all of our clients and and uh and prospects as it relates to this thought process and discussion.
• 3:14
  SPEAKER_00: And so um so that's the backdrop.
• 3:17
  SPEAKER_00: That's how I would frame it up, Mike.
• 3:19
  SPEAKER_00: I I think it's uh it's pretty important to uh not just use our space to speculate on grain prices for another 12 months up to.
• 3:30
  SPEAKER_00: It's not necessarily a good idea to utilize your space to uh just solely out of convenience for harvesting.
• 3:39
  SPEAKER_00: Um it might be worth uh spending a little bit of time here before we get into the thick of things and trying to make a decision that makes the most sense in terms of maximizing that opportunity on a very significant investment, right?
• 3:53
  SPEAKER_00: So all of us as grain producers and and in some cases feed mills and and and the like uh have a pretty significant uh brick uh uh and metal mortar structure investment as it relates to bin space, and uh uh it's appropriate that we spend a little bit of time and do our homework and uh make sure that we're maximizing that investment.
• 4:16
  SPEAKER_01: So this year um when we talk about maximizing that investment, what do you see and what do you look at this year for trying to do that, Pat, compared to maybe an average year even?
• 4:26
  SPEAKER_00: Well, this year is unique in the sense that uh you know we've drawn down old crop stocks very tightly, right?
• 4:34
  SPEAKER_00: And so if anything, we've spent more time this week uh talking about pulling new crop into the old crop marketing year, especially on corn, as we're trying to manage uh in some cases up to a buck fifty inverse, uh 35 under the deeds type bids for gut slot October, uh compared to a buck twenty, buck twenty-five, buck forty over you know, old crop corn being traded here for the middle of September.
• 5:04
  SPEAKER_00: And so that's a pretty significant spread.
• 5:06
  SPEAKER_00: And that's the first thing that I think we all need to consider.
• 5:09
  SPEAKER_00: Is there an opportunity uh for us to uh turn some new crop into old crop by maybe getting out into some of those fields that are maturing a little bit faster, in some cases faster than what we'd like?
• 5:22
  SPEAKER_00: Um, but uh um maybe there's an opportunity there for us to uh um pass on utilizing space at home and uh and uh aggressively go after some some new crop corn and and see if we can't capture a bit of that old crop inverse.
• 5:37
  SPEAKER_01: Definitely.
• 5:38
  SPEAKER_01: Um when we start comparing those inverses, especially this year, you talked about tighter ending stocks.
• 5:44
  SPEAKER_01: We don't see the carry that we normally do in the corn market.
• 5:47
  SPEAKER_01: December to July, I usually like to try to roll those hedges forward at about 25, 27 cents.
• 5:54
  SPEAKER_01: This year, we're at 10 between, you know, these to July like months.
• 5:59
  SPEAKER_01: There's not much of a difference, have been all we've got to here today, anyways.
• 6:03
  SPEAKER_01: We're looking at a uh a carry to the July contract of about two cents.
• 6:09
  SPEAKER_01: So can you explain a little bit on the carry situation and how that's gonna impact the decision between trying to get out there and get some corn right now andor putting it in the bin and seeing what happens?
• 6:19
  SPEAKER_00: Yeah, exactly.
• 6:20
  SPEAKER_00: So good good question, good next step.
• 6:22
  SPEAKER_00: And so after we've we've sort of vetted the possibilities for hitting that early harvest uh old crop inverse, now we're gonna settle into gut slot harvest and start to look at what our basis opportunity is at harvest time compared to what the potential is by holding that grain out into next July.
• 6:42
  SPEAKER_00: And so, as you mentioned with the decent July at 10 cents compared to 25 cents, that it might trade out to in a bigger crop year, um, the spread uh opportunity or the board carry opportunity isn't what it has been in previous years, but most recently, the last couple years, especially with uh pretty tight stocks, we've had some real nice basis opportunities in the deferred.
• 7:06
  SPEAKER_00: All right.
• 7:06
  SPEAKER_00: And so um, and so the likelihood, I think, in that scenario of a of um of getting an opportunity to get paid or a reasonable return on on your space by by uh by putting corn away, I think is a that's a pretty reasonable possibility, but you do need to manage it differently in a big crop year and especially in a big crop year followed by a year where we're carrying old crop stocks in, um, which at this point neither one of those situations appeared to be accurate or true for this year.
• 7:43
  SPEAKER_00: Um but for this for this crop that we're about to harvest, um it's more appropriate to kind of do one step at a time.
• 7:53
  SPEAKER_00: Maybe we originally hedge in deece, we look for a pretty decent uh opportunity to move that hedge from dece to March.
• 8:00
  SPEAKER_00: And then maybe we look for another opportunity to move it from March to May.
• 8:04
  SPEAKER_00: In previous years, big crop years, followed by big crop years, it maybe makes sense to go straight out to July and just know that we're gonna be holding that that grain for um the kind of the maximum amount of time from a carry perspective.
• 8:19
  SPEAKER_00: This year, we may still end up holding the corn that long, but you're gonna want to kind of do it one step at a time and be willing to be flexible.
• 8:27
  SPEAKER_00: There might be a basis opportunity between now and then that makes sense to uh to liquidate early.
• 8:32
  SPEAKER_01: And when you compare what to store, corn or soybeans, uh soybean market, we typically don't have the carry uh that we do in the corn market anyway, especially when we start talking about the worth of money, which this year is really important, I think.
• 8:46
  SPEAKER_01: If you want to talk with our listeners about storing either corn versus soybeans and uh seeing what decision we should make there.
• 8:55
  SPEAKER_00: Yeah, well, just simple stuff.
• 8:57
  SPEAKER_00: Uh, the first one is I mean,$14 beans at 5% money is just about six cents a bushel per month, right?
• 9:04
  SPEAKER_00: So there's a real opportunity cost there.
• 9:06
  SPEAKER_00: As we start to see interest rates climb here a little bit, and and uh uh relative to historic at least, uh you know, pretty uh pretty high price for soybeans as well.
• 9:16
  SPEAKER_00: So six cents a month interest opportunity cost.
• 9:20
  SPEAKER_00: Um that is going to wipe out likely any real carry opportunity for sure, board carry opportunities that we see in soybeans.
• 9:28
  SPEAKER_00: And then basis has a lot of work to do to make up for that uh that shortfall.
• 9:32
  SPEAKER_00: So so before you even get going, um it's uh it's uh it probably gives corn a little bit the upper hand in terms of of space allocation.
• 9:42
  SPEAKER_00: Um the other part that gets interesting about that is the whole physical discussion about putting beans in the in the bin and you have this issue of shrink and you know all those other sorts of things too, which is which definitely needs to be part of the consideration.
• 9:55
  SPEAKER_00: And so um so that's the most likely scenario, I think, Mike, is where you'd you'd you'd kind of look for an opportunity.
• 10:02
  SPEAKER_00: If you have to make a decision and you can't hold all of both crops, then you're then you're probably uh uh looking towards uh uh uh seeing if you can't move some beans.
• 10:12
  SPEAKER_00: And those two on the front end as well, right?
• 10:15
  SPEAKER_00: I mean, we have this old crop inverse uh opportunity situation as it relates to corn, but it's also true on soybeans, likely that there'll be some some at least uh modest sort of opportunities on the front end to harvest there as well.
• 10:27
  SPEAKER_01: Based on what the carry situation tells us today and based on what current bids are showing, people kind of want the corn right now, at least that's what they're telling us.
• 10:37
  SPEAKER_01: Um, but do you recommend kind of trying to store the corn, looking for a better basis level to come and just dumping the soybeans then as kind of a wrap-up on this podcast?
• 10:46
  SPEAKER_00: Well, the first thing I do uh the there's it's there's there's one more step to that.
• 10:50
  SPEAKER_00: Yeah.
• 10:50
  SPEAKER_00: The the the new the old crop corn inverse, you should hit that first.
• 10:56
  SPEAKER_00: Yep.
• 10:56
  SPEAKER_00: Right, and then try to move beans going into harvest, it's harvest, and then settle in and and and uh and put corn away.
• 11:06
  SPEAKER_00: So I would say front end corn, front end beans, and then as we get into harvest, we get basis levels, premium levels to to quote unquote normalize, then try to then try to uh uh sock both uh corn and beans away if you can.
• 11:21
  SPEAKER_01: Well, we know one thing this year is far from a typical year when it's coming to high corn prices, high soybean prices, high interest prices.
• 11:29
  SPEAKER_01: Some things have really changed over the past couple of years, so please uh consult with your risk manager on how to uh make some of those marketing decisions with Pat or I here, and then uh any other comments to finish off with, Pat?
• 11:42
  SPEAKER_00: No, that's a good wrap, Mike.
• 11:44
  SPEAKER_00: I appreciate uh appreciate that comment.
• 11:46
  SPEAKER_00: And I I I also appreciate the discussion and uh diving a little bit deeper into this uh merchandising uh spread management discussion.
• 11:53
  SPEAKER_00: And it is just a reminder that there's a there's a lot of different ways that as a producer that we need to be uh quote quote unquote experts in a lot of different things.
• 12:04
  SPEAKER_00: And this is one too that is an opportunity area that I I suspect that there's quite a few of us that are a little bit deficient on uh as it relates to to maximizing this merchandising um spread management discussion.
• 12:18
  SPEAKER_00: And so look forward to the opportunity to engage with with uh anyone who's interested in and uh and uh getting better at that aspect of your business.
• 12:27
  SPEAKER_01: Awesome.
• 12:28
  SPEAKER_01: Thank you, Pat, for coming on the show this week.
• 12:30
  SPEAKER_00: Thank you.
• 12:31
  SPEAKER_01: And thank you to all our listeners.
• 12:33
  SPEAKER_01: Please reach out to us from our website at professionalagmarketing.com or check out our newly added hog specific podcast named Hog Market Talk that's released every Thursday.
• 12:45
  SPEAKER_01: Trading commodity futures and options involve substantial risk and loss that is not suitable for all investors.