|
|
|
Carrying Charge Doubled Since
June
by Ed Usset
Grain Marketing Specialist – University of Minnesota
Look beyond the futures prices to see a tonal change in the market. As
the market transformed from bull to bear – from mid-June to now –
not only did the prices drop, but the spread (carrying charge) doubled.
In mid-June, when markets were peaking, the spread between December corn
($7.80) and July corn ($8.01) was low, at a mere 21¢. This week, with
December futures prices at $4.13 and July at $4.54 – the spread is now
high, at 41¢.
Interesting how you can see this bull-to-bear transformation in the
spreads as well. Read on to learn more about how I use carry to
determine my marketing plan.
As University of Minnesota grain marketing specialist, I have spent more
time listening to growers than doling out an upcoming market outlook. I
do that because I think growers need to start their marketing with a
different approach – one that doesn’t begin with the market
outlook.
Listening to producers, I have learned that very few had a plan to
improve their marketing results. So now I talk to them about minimizing
or eliminating mistakes made in grain marketing, which is one aspect I
write about in my book “Grain Marketing is Simple.” (www.cffm.umn.edu/simple/)
Read on to learn more about my simple approach…and there’s a video
at the end of this newsletter where I talk through this approach to
grain marketing.
|
Decision Tree Simplifies
Grain Marketing
Postharvest marketing is all about understanding
carrying charges – what they tell me about the market and grain
storage and how should I react, which I outlined in Corn & Soybean
Digest’s October issue
I developed a simple decision tree to help growers size up the market in
order to begin writing their postharvest marketing plan.
|
ADVERTISEMENT
Asgrow® Delivers Consistent Performance and
Innovation
Farmers who plant Asgrow® soybeans trust Asgrow to deliver a
consistent product that will perform from field to field and year to
year. Asgrow features elite genetics and uses advanced breeding
techniques to bring farmers high-value traits for high yield
potential.
Asgrow soybean’s commitment to consistently deliver innovations to
farmers is evident in the 2009 launch of Asgrow Roundup Ready 2
Yield™, the next generation of Roundup Ready® soybean
technology. Asgrow will lead the way with the greatest volume and number
of new varieties of Roundup Ready 2 Yield™, which has been proven to
deliver more beans per pod resulting in higher yields.
Whether you choose Asgrow soybeans for innovative technology or
consistent performance, you can be confident that are planting a
consistent, high-performance product to maximize your yield potential.
When your livelihood depends on the choices you make, Asgrow delivers.
Visit your local Asgrow dealer or Asgrow.com to learn
more.
When Roundup Ready 2 Yield soybeans are made available for
commercial release and use, they will be subject to Monsanto Company’s
comprehensive stewardship plans consistent with its Stewardship Policy
for Commercialization of Biotechnology-Derived Plant Products in
Commodity Crops. Roundup Ready 2 Yield soybean seed and any product of
a Roundup Ready 2 Yield soybean seed or crop can only be exported to, or
used, processed or sold in countries where all necessary regulatory
approvals have been granted. It is a violation of national and
international law to move material containing biotech traits across
boundaries into nations where import is not permitted.
Always read and follow pesticide label directions. Roundup Ready®
crops contain genes that confer tolerance to glyphosate, the active
ingredient in Roundup® agricultural herbicides. Roundup agricultural
herbicides will kill crops that are not glyphosate tolerant. Asgrow®
and Design, Roundup®, Roundup Ready® and Roundup Ready 2
Yield™ are trademarks of Monsanto Technology LLC. © 2008 Monsanto
Company.
|
 |
First Question – Determine
the Carry
First question is to determine if the carrying charge
is large or small. For corn, you look at the spread in price between the
December and July futures price; for soybeans, it’s the price
difference between November and July.
For example, in early October, CBOT had a large corn carry of 41¢
(December corn was $4.64 and July was $5.05). Dividing 41¢ by seven
months of carry equals 6¢/month of carry. Then we compare that to the
finance cost of grain storage. If my cash grain is worth $4.25 and my
operating loan is at 6% interest, that equals about 25¢/year or
2¢/month to finance grain in storage.
If we have 6¢ carry vs. 2¢ cost of carry, then that is almost 300%
higher, so that is easily considered a large carry. My new rule of
thumb, now that we’re in a world of higher prices, is that a small
carrying charge would cover less than 100% of interest costs, and a
large would be greater than 140%.
|
Not Black and
White
I admit that my rule of thumb may sound very black and
white, but life is not that simple because there are gray areas. Take
the soybean carry as one example. Earlier there was a 47¢ carry
(November beans $10.11 and July $10.58) which equals roughly 6¢/month
for eight months carry. With $9.50 cash beans and 6% interest, you get a
5¢ cost of carry (57¢/year).
This 6¢ carry vs. 5¢ cost of carry is very close to the cutoff, so
I’m a little conflicted in soybeans because it’s not clearly a large
or small carrying charge. And that means it’s best to diversify my
approach – not stepping boldly into selling the carry or not stepping
boldly into filling the bins with unpriced grain.
Once past the carrying charge question on the decision tree, then it’s
all about basis. And you cannot get away from your personal appetite for
risk. For example, do you really want all your soybeans unpriced in the
bins because of a small carrying charge? Because $10 beans could be $8
beans, so you’ve got to bring in your personal appetite for risk.
Listen to Usset expand on this topic at cornandsoybeandigest.com/consistency_counts_asgrow.
|
|
|
You are subscribed to this newsletter as #email#
To unsubscribe from this newsletter go to: Unsubscribe
To subscribe to this newsletter, go to: Subscribe
More About this Newsletter
To get this newsletter in a different format (Text or HTML),
or to change your e-mail address, please visit your profile
page to change your delivery preferences.
For questions concerning delivery of this newsletter, please contact our
Customer Service Department at:
Customer Service Department
Corn & Soybean Digest
A Penton Media publication
US Toll Free: 866-505-7173
International: 847-763-9504
Email:cornandsoybeandigest@pbinews.com
Penton Media | 249 W. 17th Street | New York, NY 10011
Copyright 2008, Penton Media. All rights reserved. This article is
protected by United States copyright and other intellectual property
laws and may not be reproduced, rewritten, distributed, re-disseminated,
transmitted,
displayed, published or broadcast, directly or indirectly, in any medium
without the prior written permission of Penton Media.
|
|
