By Ron Van Nurden, Farm Business Management
Riverland Community College

When using the various marketing tools it is important to remember what your goals are. It is important to look at both price and basis goals. To do this you must have some form of a market outlook. That comes by being informed of the market fundamentals of supply and demand.

You also need to be aware of the "normal" basis for the time of year you are looking to make a sale. Fall basis typically is wide; 40 cent corn basis would be an example. Spring and summer basis typically can narrow to between 25 cent and 32 cents for corn. If we can lock in a better basis than these norms, we are one step closer to profitable marketing.

When we store the crop, we should expect improved prices to cover storage costs. These storage costs include, interest on the commodity while it is in the bin, cost of maintaining the crop in condition to sell, maintance of the storage facility and other miscellaneous costs. There are two ways we recover these storage costs. First the futures price goes up. We would look at the marketing fundamentals and determine the potential for positive price movement. The second way to recover the storage costs and make money on storage is basis improvement. An abnormally wide basis in the fall encourages you to store and improves your chances to pick up the basis improvement. An abnormally narrow basis in fall discourages storage and indicates you will not gain enough money on basis improvement to pay your storage costs.

You will note that if we have a good sense of price trends and know what a typical basis is, we can go to the marketing alternatives below and chose the one that will be best help us to meet marketing goals.

More about Basis

Remember basis tells you a lot about the market decisions you make. Basis is calculated by subtracting the local price from the Chicago Futures Price. The local markets signals producers when it wants grain through the narrowing of the basis. To be a more successful marketer, we should attempt to give the market what it wants, product, when these basis signals occur. We don't have to sell the whole crop on these signals but we should give the market something in the form of a sale. Refer to the tools above to determine what might be the best marketing tool to use.

Carry in the Market

Carry in the market is another marketing signal we should be aware of. Carry is the difference between two marketing contract month's prices. This represents what it would cost to carry the crop for the extra time to the distant month. For example if Nov. corn is trading at $2.00 and March corn is trading at $2.25, the difference, $.25, is the carry the market is offering to store the crop for an additional 5 months. To determine if this is adequate carry, calculate out the interest cost and storage cost for keeping the grain for the 5 month period. In our example, the interest cost would be $.06 and the commercial storage cost would be $.15. This was calculated by using 3 cents per month storage cost and 7% interest on the grain value for the 150 days. The cost to actually carry the grain is $.21. This means that the market is allowing enough money to store the grain and that I should price the grain in March instead of November. If this calculated carry is more than what the market is offering, I should sell the crop in the November.