OMAHA (DTN) -- With cash harvest prices over $7, if you don't sell, you need to ask yourself what you are waiting for, said Terry Jones, who farms 7,000 acres in eastern Iowa with his brother Eric.

"Keep these prices in perspective. If you aren't pricing, are you expecting new highs over $8? Are you being driven by greed? Or is the easy decision to do nothing?" he asked.

Jones, who also is a risk management consultant, says he thinks pre-harvest sales lagged normal levels this year because of weather worries. "A lot of people only have 25% sold," he said. "I think it's a good plan to sell at least 25% of the remaining 75% for harvest delivery, and another third to a half on forward contracts, keeping a little for after the first of the year."

He added that sales by March's acreage worry season make more sense than holding into July. "We need to see 93 to 94 million acres of corn next year."

Currently, the market does not offer much incentive to store and hedge, particularly for soybeans, said University of Illinois Agricultural Economist Darrel Good in an interview.

"For corn, there is only an 18-cent carry from December 2011 to July 2012 futures," he said. "The current bid for harvest-delivered corn in central Illinois is 44 cents less than the price being offered by July 2012 futures. If the basis strengthens to only 5 cents under July by next spring, the market would be paying 39 cents to store the corn. At 5%, interest on $7.50 corn for seven months is 22 cents, leaving 17 cents to cover storage costs."

For soybeans, the futures market offers no carry from November 2011 to July 2012. "Current harvest bids are only 40 cents under July 2012 futures. Interest on $14.20 beans at 5% for seven months is 41 cents, leaving nothing to cover storage costs -- even if basis improves to zero," Good said.

"Unless basis gets very strong next spring, or you are in an area that has very weak harvest basis, the market is saying sell at harvest -- or store unpriced, if you think prices will rise enough to cover storage costs," Good summed up. "For soybeans in particular, owning futures or selling on a basis contract would be cheaper than storing as a way to speculate on higher prices."

Southern producers are already acting on that market message, said Scott Mickey, a farm business consultant at Clemson University. "The carry in futures doesn't encourage storing right now and our basis has gotten good, so some corn is moving."

Mickey suggests considering your tax situation this year. "Can you afford to take more income this year?" he asked.

If you do store, you need to identify at what price you are willing to sell, he added. "Prices are high and the basis is strong, so what do you expect to improve? You must have a target, not just say 'well, I think prices are going higher.' Ask yourself, 'What am I waiting for?'"

STRATEGY COMPARISON

Ed Usset, agricultural economist at the University of Minnesota, created examples of "celebrity marketers" to look at how various post-harvest strategies have performed from 1990 to 2007. He found that routinely holding your corn until just before the next harvest is the worst strategy (Hank Holder).

Selling at harvest every year actually did a little better than Hank (Barney Binless).

Storing and selling the carry every year that July corn carry is more than 15 cents over December or greater than 120% of interest costs or selling off the combine for the harvest price (Sally Sellthecarry) brought a slight improvement.

Owning the crop on paper by buying July call options on November 1 and holding them until expiration in the third week of June (Peter Paperfarmer) performed about the same as Sally's strategy.

The best routine strategies were May Seller and Earl Eitheror.

May holds her crop in the bin to sell in late spring every year. Her price is the average May cash price less storage costs.

Earl sells the carry when the spread is large (like Sally) or, when the carry is small, he stores to sell in May. "I think that Earl's approach offers the best balance between risk and reward over time. Earl's choice yielded nearly 20 cents better than the harvest price -- net of variable storage costs (interest and shrink) -- since 1990. May's average price is even better, but her approach is riskier; in a third of the years, she had a price less than the harvest price," said Usset.

	Barney Binless	Sally Sellcarry	May Sellers	Earl Eitheror	Hank Holder	Peter Paperholder
1990-2007	$2.04	$2.13	$2.29	$2.23	$1.89	$2.14
Best price	2	8	5	9	4	1
Worst Price	2	0	1	0	9	6
< Barney		0	6	2	13	15

HOW TO DECIDE IF A STORAGE HEDGE WILL PAY

Best Time to Use the Storage Hedge:
-- To provide price risk protection against declining prices for stored grain.
-- To capture potential basis gain.
When the indicated net return to storage represents an acceptable profit.
	$/bu.
Current cash price
+ Storage costs (_ ¢/bu./mo. X months stored)
+ Interest costs (_ % X $ /bu. for months stored/12)
+ Shrink (assume 1.4% X $ /bu. for on-farm corn storage)
+ Extra drying cost (assume 2 cents/bu. for drying corn from 15.5% to 14.5%)
= Break-even price
Localize the Futures Price
Determine market offering for selected futures contract month
Adjust for basis for the delivery month (+ or -)
= Localized futures price
The Decision
Localized futures price
- Breakeven price
= Indicated return to storage
- Commission cost
= Indicated net return to the storage hedge
The actual profitability of the storage hedge is likely to be within a few cents of the indicated net return. The only factor that will affect the indicated vs. actual return to the storage hedge is the ending basis.
(Worksheet from Carl German, University of Delaware)

Linda H. Smith can be reached at linda.h.smith@telventdtn.com

(ES/AG)

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