Posted by: usset001 | November 3, 2008

Celebrity Producers Post-Harvest Corn Update

I use celebrity producers to illustrate the pros and cons of different approaches to grain marketing. Yesterday, I added the results for the 2007 crop year (ended early October 2008) to update results for my celebrity producers and the post-harvest marketing of corn. You can see the results here. I recommend checking the summary of results first.

Our producer with a 2007 post-harvest marketing plan that delivered the highest corn price was Peter Paperfarmer. Peter has no on-farm storage. His post-harvest strategy is to sell his grain at harvest and “re-own” with the purchase of July call options on November 1. He holds these options until expiration in the third week of June.

I have been tracking the results of six different celebrity producers using actual data from Southwestern Minnesota since 1989. This is the first time in the past 19 years that Peter’s reownership strategy beat the field to take home the “best price” prize. If you check Peter’s record, you will learn that his purchase of July corn calls has paid off just three times since 1990. But last years’ pay-off was very large, and helped by the fact that the mid-June expiration date was very close to the futures high last summer.

Other celebrities competing in the post-harvest challenge include…

Barney Binless: Barney has no on-farm storage, so he sells his crop off the combine, taking the harvest price every year. Barney is our benchmark for comparison. For a particular post-harvest marketing strategy to be successful, it needs to show me results that offer a good chance to get a price better than Barney’s harvest price.

May Sellers: May has on-farm storage.  Every year she holds her crop in the bin to sell in late spring.  Her price is the cash price in the month of May, less storage costs.

Sally Sellthecarry: Sally has on-farm storage.  She “sells the carry” in the market in every year that the Dec-Jul corn carry is >15 cents (1989-2006) or greater than 120% of interest costs (2007 forward) at harvest.  If the carry is small, she sells off the combine and takes the harvest price.  Storage costs are accounted for in years where she sells the carry.

Earl Eitheror: Earl also has on-farm storage. He either sells the carry when carrying charges are large (like Sally) or, when carrying charges are small, he holds his crop in the bin to sell in May (like May Sellers).  Again, storage costs are taken into account. I think that Earl’s approach offers the best balance between rick 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 1/3 of the years she had a price less than the harvest price.

Hank Holder: Hank is our perennial bull, always convinced that prices are about to surge higher.  But Hank only has enough storage for one crop, so each year he is forced to sell the previous years’ crop right before harvest, to make room for the new crop.  His price is the following harvest price, less storage costs.

Just for fun, I added two new celebrities this fall. Margery the Fortune Teller shows us the best price each year because Margery can see the future. Wally Whipsaw‘s strategy is to sell this year when he should have sold last year. I consider Wally’s approach to be the most common approach employed by producers.


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