Forward pricing crops before harvest was a money making strategy for many years. But early sales didn’t always work best in recent years, and that caused many producers to sell less of their 2013 production than normal. Now those farmers face an uncertain market for their inventory.
To help gauge the risk of storage, Farm Futures tracked annual returns from different strategies from 1985 through the 2012 crop year. This is the entire period options traded on agricultural futures, allowing a side-by-side comparison of different cash, futures and options strategies for nine corn and eight soybeans locations. We’ve also include 10-year averages to account for changes to the market in the past decade.
In addition to year-by-year results by location for each strategy, these files contain summaries to help farmers balance overall risk and return. Depreciation on bins and equipment vary widely depending on age of the facilities, so these figures do not include any expense for capital costs, though operating costs are figured at as close to market rates as possible. On-farm storage costs include interest charge on stored grain using prevailing operating and CCC loan rates. Handling charges are 1 to 2 cents per month for on-farm storage, 2.5 to 5 cents per month for commercial storage.
In addition to net gains and losses over the harvest price, the results include the number of years the strategy made money as well as a factor for risk - the unpredictability of returns. The higher the risk number, in general the greater both the gains and losses from a strategy may be.
All positions are initiated in first week of October and liquidated upon expiration of July options for corn and soybeans. Brokerage commissions and slippage figured at $100 per round trip, or two cents per bushel.
Futures and options results are based on official Chicago Board of Trade settlement prices; results were estimated for a few dates when trades did not take place using a widely followed options model.
However, all results are hypothetical, not the result of actual trades. Moreover, past performance of a strategy is no guarantee of future results.