Economic Tidbits

You Got to Know When to Hold ‘Em

Deciding when to sell a crop is a difficult decision. Producers can sell prior to harvest, at harvest in the fall, or store the crop and sell after the first of the year. There are advantages and disadvantages to each. Many producers wait to market their crop until after the calendar turns. Figures from the Nebraska Corn Board indicate 57 percent of corn harvested in Nebraska is marketed after January 1. Joe Janzen, an agricultural economist with the University of Illinois, says 60 percent of corn and soybeans produced in Illinois remains to be sold at the end of a year.

Janzen explores the pros and cons of holding and selling grain after the first of the year in his paper, Post-harvest Grain Marketing: Do Farmers Reap the Benefits? Farmers’ primary motive for holding grain is better prices. Commodity prices typically rise between January through June and producers hope to capture this gain. Figure 1, from Janzen’s paper, shows the seasonal price variation in cash prices for corn and soybeans in Illinois for crop marketing years 2003-2020. The lows for the marketing year generally occur during harvest with the highs occurring in June or July of the following year. Janzen writes that corn and soybean prices appreciate about 20 percent between October and June or July. While Janzen’s observations are for Illinois, they surely hold for Nebraska too.

FIGURE 1. PRICE VARIATION IN CENTRAL ILLINOIS, DEVIATION FROM MARKETING YEAR AVERAGE

Source: Janzen, J. “Post-harvest Grain Marketing: Do Farmers Reap the Benefits?” farmdoc daily (14):4, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, January 5, 2024.

Using farm-specific data from the Illinois Farm Business Farm Management Association, Janzen examines the marketing performances of farms who sell corn both prior to January 1 and after January 1. By comparing the prices realized during both periods, a comparison of marketing performance can be made. Janzen was able to gather around 16,000 farm-year marketing observations between 2003-2020 for the analysis.

Janzen defines the percentage difference between post-January 1 and pre-January 1 sales as his measure of market performance. The costs of holding grain (i.e. storage or interest costs) are not included in the measure. The average gross return for holding corn for sale post-January 1 was 7 percent and the average return for holding soybeans was 6 percent. However, there was a wide range in outcomes. Some years saw gains of 50 percent while in other years losses of 40 percent were seen. Janzen writes, “This analysis suggests farmers should carefully weigh the risks of post-harvest grain sales, especially unhedged sales. Although farmers do realize profits in the aggregate from selling later, the wide variety of outcomes from deferred sales shows the downside risk of losing money on stored grain is significant.” Gains can be had by holding grain, but it isn’t without risk. Producers need to know “when to fold ‘em” too. Janzen’s paper can be found here.

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