Crop Insurance Market Updates

Winter, 2021

Forward contracting grain is something we often do prior to harvest for delivery at harvest.  But what do we do with the grain in our bins? If we haven’t sold deferred futures prior to harvest, we really should look at the price advantages of forward contracting what is in the bin. Selling the carry is a common saying, but what does it mean?

The carry is simply when deferred months are higher than the nearby month. An example of this is when we just finished harvest and it is November, so the nearby month is December on corn.  If December corn trades at $5.50 and March the following year is $5.59, then we have a 9-cent carry. In essence, the market pays you to store grain. However, if you choose to wait to market grain, many times by the time March rolls around the market will find a way to come back to the $5.50 area and the carry will be gone. Why is that? Remember the market is paying you to store grain. To take advantage of these market tendencies, we must sell the carry or forward contract for a delivery later in time.

There are a few things to consider when making this decision. These include the cost to carry grain, logistics of getting to and from bins, cash flow needs, quality control with grain in the bin, and probably more. But the main point is we should look at selling the carry if it makes sense. Don’t assume the market will be the same or higher by the time we reach the month we want to move grain.

When selling grain on a forward contract it’s also important to compare the cash carry with the futures carry. This helps determine whether to set the basis as you forward contract or just set the futures. A cash carry is the cash price today compared with cash prices of deferred months. Using the example from above, if futures today are $5.50 with a minus 30-cent basis, then we have a $5.20 cash price. If we have $5.59 March futures, and our local grain buyer posts a minus 32-cent basis for March, then we have a $5.27 cash price for March delivery. In the end, we have a 7-cent cash carry and a 9-cent futures carry.

Producers often will set the futures and wait to set basis assuming it will improve. If prices are at a level that works, then some may sell cash so they know exactly what they are getting. I am not saying one is better than the other, but I feel we should look at both and see what works for your situation.

There are more ways to reduce risk with a carry market. Maybe a minimum price fits your marketing plan? Take time after harvest to visit with your grain originator and share your wants and needs to make a plan to market stored grain. Having a plan and being proactive in making marketing decisions gives you the opportunity to add to your bottom line.

Crop Insurance Connection

As harvest wraps up, the crop insurance coverage period also ends. The end of insurance period is when a farmer no longer has any production or revenue guarantee on the crop. This date is the earliest of the following:

  • the date the crop is harvested, abandoned, or destroyed
  • the date the final adjustment on losses is made
  • a specified calendar date for each crop. Corn and soybeans are December 10.

Coverage can be extended if you still have unharvested crops. Contact your crop insurance agent and inform them if you will have unharvested crops after December 10. The agent will notify the approved insurance provider that the policy is written through to see if an extension is warranted.

 

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