Storage is an important marketing and risk management tool that allows producers to extend the marketing interval and avoid seasonal low prices at harvest. As harvest rapidly approaches, producers will need to determine the amount of production that can be stored on-farm or in commercial storage and which commodities to store if limited space is available. Looking at current futures market price spreads provides an indication of whether the futures market is incentivizing storing corn or soybeans (Table 1 and 2). To compare the benefit of storage between commodities, we can look at the spread between the nearby and deferred futures contracts and the interest cost associated with carrying the commodity for sale at a later date. In this analysis, the interest rate is assumed to be 8.0%. This results in a monthly interest cost of $0.026/bu ($3.83/bu x 8% x 1/12 months) for corn and $0.067/bu/month ($10.08/bu x 8% x 1/12 months) for soybeans.
Comparing the May futures contract and interest cost for corn and soybeans indicates a benefit to storing corn over soybeans. The futures market spread between the September and May corn contract is $0.46/bu ($4.29/bu – $3.83/bu). The interest cost is $0.20/bu ($0.026/bu/month x 8 months). The spread less interest is $0.26/bu. For soybeans, the September and May spread is $0.54/bu ($10.62/bu – $10.08/bu) with an interest cost of $0.54/bu ($0.067/bu/month x 8 months). This results in a soybean spread less interest of $0.00/bu. Examining other deferred contract months provides a similar result. Thus, the futures market is indicating a stronger incentive to store corn than soybeans. It is important to note that this analysis does not include changes in basis, which will vary by location and could change the storage preference between commodities.
References
Barchart.com. December Corn and Soybean Futures Prices. Accessed August 7, 2024 at: https://www.barchart.com/futures/grains?viewName=main.
Smith, Aaron. “Storing corn or soybeans: what is the futures market incentivizing?” Southern Ag Today 4(33.1). August 12, 2024. Permalink
