Ahh Springtime. The snow is melting, the birds are singing, the sun is shining and you’re ready for the hockey playoffs. You’re primed and ready to get into the field (if you haven’t already) and get your new season underway.
Spring is a time of optimism. Or is it? If you’ve got contracted grain still sitting in the bin – maybe things aren’t all April showers and May flowers. For far too many growers, the contracted grain they expected to have delivered by now is sitting and waiting for the rail backlog to resolve. Meanwhile, you have road bans to consider, potential cash flow nightmares, and depending on how your grain is stored, the warming temperatures might just mean the worst-case scenario for quality.
What about stored grain that isn’t contracted? Well, you might have less to be concerned about but the rail difficulties this spring sure make things uncertain.
Understand the impact of grain storage in your marketing strategy
Let’s take a step back and look at why you have uncontracted grain in the bin to begin with.
Alberta Agriculture and Forestry’s Agriculture Marketing Guide has a great section on Grain Storage as a Marketing Strategy. It really hits on the key considerations for storage, including the potential for better prices, and the associated costs. They also provide a real-world example to put it all into perspective. Here’s some of their key points we think are especially relevant for decisions about your spring grain marketing plan.
- Storing grain can be a viable marketing strategy
- Dealers may pay a price premium for deferred delivery for capacity reasons
- Prices tend to be at their lowest following harvest, so a better price might become available later in the year
- Selling intermittently throughout the year helps you spread price risk around and manage cash flow
- A better price doesn’t guarantee a better bottom line:
- Storage costs including building or maintaining storage
- Lost interest received or paid if the grain had been sold earlier (opportunity cost)
They do a good job of explaining that the cost of storing the grain increases over time, and the longer you store it, the higher the price you need to make up for it.
“over time, the difference between the net return price and the cash price widens. This is due to storage and opportunity costs that have accumulated over the period of time that the product has been stored.”
Explaining Opportunity Cost
BusinessDictionary.com defines opportunity cost as “a benefit, profit, or value of something that must be given up to acquire or achieve something else.”
In the context of grain storage, consider that an empty bin would allow you the opportunity to purchase and store fertilizer in December to lower taxes and lock in a better price potentially. The empty bin could also mean early delivery of seed which usually comes with a better price. If you choose to store grain as part of your marketing strategy, in this example you’d need to factor in the “opportunity cost” or forgone financial advantages of the December fertilizer purchase or early seed delivery.
Finding opportunity this spring with a broader horizon
Regardless of why you have uncontracted grain in storage today, you’re probably wondering if there’s any point in contracting now when there is so much uncertainty on when you can deliver.
And this is the point where we like to remind growers that not all delivery has to involve a rail line that goes to a port.
One of the great things about today’s grain market is that there are diverse options. If you know where to look, there are buyers who can take delivery directly, avoiding the rail backlog entirely. Consider local processors or crushers or other niche market buyers as part of your spring marketing plan for the grain that isn’t contracted.
Just like any other year, you’ll have to evaluate the bids of these buyers independently to see how they fit into your overall strategy. This year, however, you must also factor in the rising cost of not moving your grain should you choose to try to contract it with a traditional farm-terminal-port approach. Uncertainty has a cost.
As of today, there are over 140 buying locations on CXN360 and they aren’t all your traditional buyer. If you’d like to gain insight and access to a new scope of grain buyers, sign up now for a complimentary trial of CXN360. Or, if you want to learn more about the system, request a demo.