After harvest, grain marketing changes. Farmers take stock of their crops and know exactly how many bushels they have to sell. The questions for these remaining bushels are: sell or store• Prompt sales reduce storage costs, but prices at harvest are usually discounted compared to prices later in the year of sale.? Futures markets offer higher prices later on to encourage storage and distribution until the next harvest (so-called carry). Storing grain also allows farmers to speculate on commodity prices and hold grain in anticipation of future price increases.
This article is the first in a series examining the retail vs. store decision in postharvest grain marketing. This first article examines the scale of this challenge for Illinois corn and soybean farms. How much of the annual production must the farm sell after the harvest? This is the flip side of how much grain the farm puts on the market before or during the harvest. Post-harvest marketing becomes even more important if farms choose to minimize pre-harvest sales.
It is difficult to understand the scale of the post-harvest grain marketing challenge. That's because, in total, there is incomplete information about how much grain farms have to sell at the moment. The quantity of physical inventory on the farm, or the quantity of inventory recorded on the farm's financial statements, may not match the amount of grain harvested. This is because grain is priced either before delivery using forward contracts or after delivery using rented commercial storage space or deferral. price agreement. Additionally, a “typical” or average case based on aggregate data cannot capture variation in storage and marketing decisions across farms.
We compare different measures of farmer marketing behavior for corn and soybeans in December. I believe that post-harvest marketing must be an important activity for grain farms in Illinois. In total, about 60% of production remains unsold after harvest. This means that farmers may be exposed to significant price risk after harvest. My analysis also suggests that farm financial records, such as those maintained by the Illinois Board of Farm Business and Farm Management (FBFM), may provide useful information about farmers' marketing activities. In future articles, we will evaluate the variation in marketing efforts across farms and the profitability of sales and store decisions.
Post-harvest farm storage and sales quantity
I consider three measures of how much grain Illinois farms have to sell in December, just after the corn and soybean harvest season. The first is farm inventory. Grain is stored in facilities physically located on the farm. The National Agricultural Statistics Service (NASS) estimates farm inventories by state as of December 1 of each year in its Grain Inventory Report. On-farm physical inventory is a limited measure of how much grain a farmer has to sell. Farmers may overestimate the amount of grain that will go to market if some grain is priced using futures contracts, and some unpriced grain may be held back. If so, the amount of grain entering the market may be underestimated. -farm. NASS also reports annual grain production by state. Expressing inventory as a share of production facilitates comparisons across time, states, and farms.
The second measure of grain sold is based on data on farmers' grain sales collected by NASS using the Farm Survey. Although publicly available data related to farm sales are limited, each year NASS reports a set of marketing weights that represent the proportion of that year's production that goes to market in each month of the marketing year. I am. These weights are shown in Figure 1. (Note that the marketing year for corn and soybeans is September through August.) The marketing weight of NASS is greater in the months immediately following harvest, especially from October to January. A significant portion of the crop will be on the market in January, as it will be sold after January 1st.cent This allows farms to move income between tax periods. By summing the weights from September to December, we can estimate the proportion of the crop that will be on the market by the end of the calendar year. The share of production that goes to market is the share that goes to market.
My final measure is the amount of book inventory held on the farm's balance sheet as of December 31, the end of the calendar year. Illinois FBFM grain farms report inventory quantities by item. Like other data sources, the Illinois FBFM records production, so you can express inventory as a share of production and compare it to the measurements above. Book inventory can include grain that is in commercial storage facilities, so it can be larger than physical inventory on the farm. Additionally, grain prices are priced using forward contracts (including deferred price contracts that allow farms to deliver grain but realize sales after the December 31st tax year end). If so, they can be larger than the production sold on the market. For these reasons, book inventories may overestimate the post-harvest quantity shipped to market. Physical and book inventory on the farm can place lower and upper limits on the amount of grain actually sold.
Figure 2 shows these three indicators for storage and sales by year for both corn and soybeans. As suggested above, the proportion of produce marketed according to NASS marketing weights falls between the farm's physical and book inventories. All measurements are slightly higher for corn compared to soybean. On-farm physical inventory averages about 45% of production for both corn and soybeans. As of December 31, the average share of marketed production was 65% for corn and 60% for soybeans. Book stocks as a percentage of production average just over 80% for both crops.
In Figure 2, two things stand out. First, December marketing and storage levels, expressed as a share of production, do not vary significantly from year to year. Overall, farms do not appear to significantly change the proportion of grain sold after harvest from year to year in response to changes in price levels or price spreads. Take 2012 as an example. This year's drought led to high spot prices at harvest and negative calendar spreads for corn and soybean futures. Negative calendar spreads suggest limited returns to grain storage. Despite these market signals, farms maintained the proportion of grain distributed to market and book grain inventories near normal levels with only modest reductions in on-farm physical inventories.
Second, book inventory closely tracks marketing weight movements. The directions of year-to-year changes in marketing weights and book inventories are similar, although the magnitude of change is different. This suggests that his FBFM data on book inventories are informative about the pace of agricultural sales and farmers' desire to sell or store. Unlike the NASS data on marketing, we observe book inventories at the farm level and will explore between-farm variation in a future article.
what it means
Post-harvest grain marketing is important. As long as the grain is not available on the market, the farm must bear price risk. Most of Illinois' corn and soybean crops are still unsold after harvest, according to the data. This suggests that farmers are willing to assume price risk and realize most of their crop income post-harvest.
Farmers face pressure to sell this grain profitably. A typical seasonal pattern is that crop prices rise after harvest. Farmers can make a profit by storing grain, but this can come at some cost. Regarding the benefits of postharvest marketing, Ed Ussett (2010), an extension economist at the University of Minnesota, frankly states, “Storing grain for long periods of time is a big mistake that too many farmers make.'' Says. Market analyst Angie Setzer (2016) Pro Farmer )
Given the importance of postharvest grain marketing to farm profitability, the benefits and costs of holding grain after harvest must be carefully weighed. These benefits and costs can vary widely from farm to farm. Future articles in this series will use data from the Illinois FBFM to explore how postharvest marketing activities and their benefits and costs vary by farm.
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The authors would like to acknowledge that some of the data used in this study comes from the Illinois Board of Farm Business and Farm Management (FBFM). Without the Illinois FBFM, such comprehensive and accurate information would not be available for educational purposes. FBFM is a nonprofit organization made up of more than 5,000 farmers and 70 professional field staff and available to all farmers in Illinois. FBFM's field staff provides farm consultation along with recordkeeping, farm financial management, entity planning, and income tax management. For more information, contact his FBFM office on the University of Illinois College of Agricultural and Consumer Economics campus at 217-333-8346 or visit the FBFM website at www.fbfm.org.
