There was a 30¢ carry in the Ohio corn market earlier this month.
September 3, 2020. Everybody loves a carry in the market, a spread that “pays” growers for storing their grain. A recent look at markets near Dayton, Ohio showed a 30 cent carry in corn this fall. How can you prepare, find, and execute on opportunities like this in the future?
Lock in the price. This may seem obvious. But the most common response, at the moment of a sale, is hesitation. What if the price continues to rally? Is storage really the best move? Maybe I should wait until tomorrow. Instead, remember two points:
- Grain is like any other appreciating asset – like a bond, or a house. If you have no intention of putting it on the market, you haven’t actually made the upside.
- The rally’s only useful if you take action. If you’ve got the storage, unpriced grain, and tolerance for risk, consider what this spread would mean for your bottom line.
For more details on forming a regimented plan, tune in for episode #11 of the podcast,
“Disciplined Marketing Plans,” where Gabe and Rodney cover how simple strategies often
bring the most consistent value to an operation.
Minimize rounding. Whether you play it a bit safe or inflate your position, round up or round down, there is a greater chance for a misstep. Avoid this, especially when it comes analyzing data behind your operation. By owning your exact position, there will be fewer surprises come the end of the year.
- Use an on-trend yield in your calculations, not average production history or – worse – a flatout guess. (This will help to not leave too much grain on the table after months of transactions.)
- Look at the actual market price, instead of rounding up or down to the nearest cent. (Those small directions make all the difference between hitting and missing your goals, as Gabe points out in his math behind reaching a daily exercise goal.)
- Stay specific to the bushels you want to contract. (Backing off at the scheduled selling moment can feel wise. And safe. But it’s ultimately a disservice, leaving a larger-than-planned portion of the crop subject to the market’s price.)
Want to explore other basic – but effective – strategies for your grain marketing plan? Read this blog from Indigo’s pricing desk, which details spot pricing, cash forward, and pricing products, among other tools.
Want to prepare for the next market carry? Speak to a grain marketing specialist at 850-780-5502.
Rodney: Dayton, Ohio. Is that a reasonable place to start?
Gabe: I mean, it's a place in Ohio. Yeah.
Rodney: Yeah, so I just punched in some quick ... I got a quick dashboard here that kind of tells us what's going on in Dayton. That crop, Gabe, is fairly average it looks like.
Rodney: Kind of just checked our Atlas yield data. It looks like right on average. So happened to improve quite a bit this week. So this week, for whatever reason, it's been good for that area.
Gabe: When you say average, what do you mean? Are you talking about just the numerical average? So, what the average of the last five years is? Are you looking at an on trend average?
Rodney: Yeah, I think we're talking about an on trend average here. So it's like they're raising about what we would have expected, at a state level for corn. At least what Indigo would have expected.
Gabe: Okay. And you talked about the crop quality had kind of taken a dive, but I know when we were talking before you said Atlas was starting to show things actually coming back up. Was that happening in Ohio too?
Rodney: Yeah. So Ohio in particular has had a big improvement here in the last couple of weeks. I'm not sure what led to that, but yeah, definitely trending upwards there.
Gabe: So what are they looking at for corn?
Rodney: About 184 bushels, where we're at today.
Gabe: 184. Okay.
Rodney: And by the way, this is the whole state of Ohio.
Gabe: It's the whole state.
Rodney: Right? I didn't dig in.
Gabe: What were they at last year?
Rodney: Last year was 139 I think. It was a tough year last year. One of those 100 year years, it feels like.
Gabe: Yeah. 139 is pretty bad.
Gabe: And then the storms that moved through didn't hit Ohio particularly bad. Right?
Rodney: I don't think so. I think it kind of died out in Indiana. Right? So yeah, that crop should be moving right along. And like I said, improving for sure. So no I did, I just went back and looked at their basis, like over the last couple of years. Yeah, I'm looking at five years worth of basis values.
Rodney: They are a little weak on basis. So on average they're kind of I'd say a nickel light of what guys over there would expect to see. Maybe even 7 cents. Not surprising. Why is that? Why is basis wider, Gabe?
Gabe: Well, so the crop way better than last year. And if they're making markets like you did when you were a merchant, you're going, "Hey, what does this crop look like versus last year? And what did we pay people last year?"
Rodney: It feels like a huge crop, right?
Rodney: Like it feels like 40 bushel more than last year.
Gabe: That's because it's 40 bushel more than last year.
Rodney: Yeah, I know, but I would say it's hard for a grain buyer, and maybe I was the worst one, but it's hard for grain buyer to separate like, "Hey, it's 40 bushel bigger than last year. But it's only six bushel bigger than the other years prior to that." I think you would tell me those other years feel like they never happened, right, because the time?
Gabe: That's right. Yeah. They both never happened and they weren't ... Like anything that's expected your brain kind of ignores.
Rodney: Yeah. Right. So it feels like I got a huge crop running my way. I do see though that basis has improved significantly. It's improved 4 cents in the last like 35 days. Right? So it's been creeping up. I think these guys are probably getting out in the field a little bit and saying, "Hey, maybe I don't have what feels like a 250 bushel crop heading my direction." Right? A little bit of context there.
Gabe: Yeah. Yeah. Well, and if supplies are getting constrained to other places, right, you start to see some of that creep off. Right? So if there really are production concerns in other parts of the US it might start to have an impact.
Rodney: Yeah. The other thing, so I am looking at all of Ohio, so you could see, it looks like things are heating up on the western side of Ohio. It could be, Indiana is big ethanol, has a lot of ethanol demand, right. Some processing demand there. They could be a little worried about that crop they have going on there. Some impact from derecho. Although Iowa is definitely the big story from that. I'm in Illinois, we definitely saw some fallout from that. And I know it continued through to Indiana there. So what's interesting, as I pick, if I'm a farmer in Dayton, I think what's most interesting to me is I told you basis is wide for fall. All right? So not super excited about fall basis here. But I'm seeing a 30 cent carry from October to December.
Rodney: Yeah. That's huge.
Gabe: That's pretty big.
Rodney: That's a monster carry. Now that is, by the way, net of transportation for a farmer in Dayton, Ohio.
Gabe: Okay. So but if I'm in Dayton, you're telling me right now, I mean, the market's paying me 10 cents a month to sit on the corn?
Rodney: That's right.
Gabe: Okay. So that seems like a good ... So we talk a lot about balancing those decisions between like, what does it take to put it in storage and take it out versus just delivering it at harvest? That feels like it probably gets you over the hump of wanting to wait to get that cash. Is that?
Rodney: That's right. I mean, at 30 cents or at 10 cents a month, I'm probably going to leave the last load in the semi if I can.
Gabe: Yeah. Just piling up. Yeah.
Gabe: So that's it. Yeah. That's a pretty big swing. So what is the actual basis spread, like just the basis itself?
Rodney: So it is that 30 cents. So October and December is both based off December. So that basis staring at you in the face.
Gabe: Okay. Wow. I mean, that's pretty awesome. So if you're in Dayton and you've got storage, seems like it's a good time. Or even a semi-truck seems like it's a good time to use it.
Rodney: Yeah. But to back that back out a little bit, I think what's showing up here, and we literally randomly picked this place, but what's showing up here is we have a 2.5 billion bushel carry out on corn. Right? We should see a carry in the market. And we haven't seen that carry. For a year, I don't even know what this year's carry out is off the top of my head, but it's large. We came into this crop with a large carry out. And you would have expected based on those fundamentals to see a big carry in corn. But the reason we didn't see one was because the farmer wasn't happy with the price. Right? So that front end, that spot bid, had to be strong enough to compel a farmer to get in the truck and haul. And I think what we're finally seeing here for some reason, at least in Dayton, Ohio, is that carry being brought back into the market. Right? This is a state that appears to have a reasonable supply, it's meeting its demand, and it's going to pay that farmer to store it.
Gabe: And they're doing that because they think, that the buyer, is pretty confident that enough grain is going to have to come into the facility and they don't have to pay up for it. People just won't have anywhere to put it.
Rodney: That's exactly right. Hey, let's be clear. I'm sure the buyer is paying as much as he possibly can to that farmer to make it work. Right? But I mean, yeah, there is a cost of carrying that grain that that buyer is going to have to do. Right?
Gabe: Well, that's exactly it. Yeah. Sorry. Yeah. So yeah, the buyer is expecting plenty of grain to flow into the facility, which means they're going to have plenty of grain they have to take care of.
Rodney: That's exactly, yeah. So again, back when I was working at an actual facility that stored grain, when the crop was big enough that you had to like, say, throw corn on the ground on a ground pot, right? When you do that suddenly you have to buy a tarp, you should price a tarp sometime that covers up 2.5 million bushels of corn Gabe.
Gabe: Oh I was going to say. I've got like a 10 footer in the basement.
Rodney: Yeah, no, that's a fun little ticket. Yeah. But then also like the loss that you take by doing that. Right? So when you take two million bushels and throw it on the ground, I'm sure everybody's better than I was at it, but you're going to take some loss, and that's got to be built into what you're paying that farmer or charging that farmer for the carry, essentially.
Gabe: You're saying people don't want that crusty corn on the outside of it?
Rodney: Man, that is the worst. That is no fun. Clearing a ground pile is no fun.
Gabe: Where you guys built for it? Or was that literally ...
Rodney: No. Yeah, we were built for it. So we would never put corn on anything that wasn't at least asphalt. Right? Or maybe some lime. We might have had a lime pile here or there. But boy, I know guys that will just take an auger and just shoot it out into the grass. If there's enough carry. Right?
Gabe: Yeah. It works.
Rodney: And at 30 cents, I'm going to consider that, I can tell you that.
Gabe: Well talking about carrying the pain, I know when I was talking to some farmers earlier a couple of months back, they were just talking about usage being really low. And so there were a number of ground piles that were still around that normally would have been gone ideally before the end of the calendar year, and certainly once things had thawed and they were still hanging out. So I mean I always think of, when we're talking about ground piles, I always think about the big ones in Nebraska. Like those are ...
Rodney: Yeah. I've never seen one in real life. I've never been out there. But yeah, seen pictures for sure.
Gabe: Yeah. So anyway.
Rodney: Yeah. Hey, I would say the last thing I want to say about this farmer in Dayton, and and it's mostly because of this rally, right? So we've seen this rally, things are looking good. In order to take advantage of a carry in a market you have to sell that carry. Right? So I am not giving grain marketing advice here, Gabe. Right? We don't give advice on this show. I am saying if I was a farmer in Dayton, Ohio, I had storage, and I didn't have much sold, I would highly consider taking advantage of a 25 cent futures market rally, a 30 cent carry to December, and saying, "Hey, maybe I will take advantage of this and lock in a price that I haven't seen in a very long time."
Gabe: Yeah. Well, I think that you have to pull the trigger, is important to note. I was talking to one of our teammates, Shawn, who lives in northern Minnesota on a Lake. And so with COVID there's a huge demand suddenly for, everybody's kind of moving out of cities, right? Like because everybody can work remote. And so that's more demand than they've seen in northern Minnesota ever. And so he was talking about just it was kind of weird to see and talking about the value of his house going up. And I asked him, "Are you going to sell it?" He said, "Well no." "Okay. It doesn't really matter now does it?"
Rodney: That's right.
Gabe: And it's same kind of thing. Right? If you don't pull the trigger it doesn't matter. I think we'll have this conversation again when we get to crop insurance time. Because I think that's another place where we see people, like whatever. They, I don't want to say get excited, but they see a crop insurance payout, but you still have to sell the grain. And that piece of it can be tough.
Gabe: I wanted to share a brief story about rounding, because we talk of ... Right? So to look at me, you wouldn't know that I work out every day.
Rodney: I know. Dude, you're looking buff. We can see the changes.
Gabe: I took advantage of the ease of working out from home. Absolutely. And so I was working out, and there's this thing where if you get 10,000 minutes I think in a year you get a little badge. And so first of all, when they first show it to you they show the top end of that badge. So every 1000 minutes that you spend working out they give you another badge.
Rodney: Mm-hmm. Nice.
Gabe: But I had the top end at 5,000. So it was getting close to 5,000. All of a sudden it says to me on the bike, "Hey, you're doing great. Guess what? It's 10,000 now."
Rodney: So you never got the badge?
Gabe: Well, I'm sure I got one for 5,000. But they moved the-
Gabe: Yeah. They moved the target for me. And so I saw that right when I was getting on the bike to work out. And so I was like, "Huh, I wonder if I can hit 10,000." And so this was in August, and I hadn't hit 5,000 yet. So I went, "Well, I'm already in August. So I'm just going to start counting September." So I get September, October, November, December. So that's four months, and I haven't hit 5,000 yet. So I'm just going to assume I've got 6,000 to go. So I did that math, and it came out to be, I'm going to embarrass myself by not getting it right off the top of my head. But it was something like 45 minutes a day or something like that, which I just don't have time for to actually do 45 minutes a day of full workout. I was like, "Aw," I was all bummed.
Gabe: Well, when it was all said and done, like I got off and I did the actual math. So I counted. So I still had some of August left and I was way closer to 5,000, and suddenly the number became really close to 30 minutes a day.
Gabe: I was like, "Oh, I can get there." It's going to be hard. Right? And I may not. But the point being like, it was just funny kind of doing, being conservative on both sides, I was just living in the middle of it.
Rodney: Yeah, buddy. Yeah. Imagine when you can be conservative on a 100 different variants.
Rodney: Right? Yeah.
Gabe: Yeah. Make sure you're taking an actual look at your yield. Right? What do you really think you got? So don't use your average, at least use your on trend average if that's the right number for you. Look at the actual market price. So I'm looking at December futures right now are 354. It's really easy to count that at 350.
Rodney: That's right.
Gabe: And then I'm not sure exactly what you're seeing on basis, but probably that's a similar place where somebody might round down.
Rodney: Yeah. The other thing I'd say is, as much as I like to talk about breakeven and really dive in deep and understanding those numbers, I think for me right now, I'm going to do that for 2021. Right? Because I've got time, I can be a little more patient for 2021. Right? And really understand my cost production and all that. I think my math I'm doing for 2020 crop is: how big is this crop? How much can I store? Right? And what are my logistical concerns? Because that 30 cents carry that we talked about, if you can make a plan around the actual logistics associated with this and get it down to, "Hey, I've got 27,000 bushel that I need to move." Right? That's a big deal because if we get to October and it turns out this crop is a little bigger than we thought or than that grain buyer thought, now that 35 under maybe is 40 under, Or 45 under. And you still have to haul that grain. Right? That's the problem.
Rodney: The unknown is going to work against you. Right? So if you can do those yield checks, don't grab the biggest ear on the side of the road or on the outside row. Gabe, if you ever go do a yield check with a farmer, don't take any of his ears. Say, "Hey, I'm going to go in their field and do the yield check, you grab the ears." And inevitably when you walk out, he's going to hand you an ear, and he's going to say, "Hey, use this one too. Throw that one out," every time. You're not helping anybody. It's the biggest ear you've ever seen in your whole life.
Rodney: But if you take enough yield checks, have a really good average of what you think this crop is going to be, and then do that math to say like, "Hey, my current problem that I'm dealing with is 27,000 bushel of corn that I got to find a home for." I don't know. Maybe see what it costs you to build a 27,000 bushel pile.
Rodney: Who knows?
Gabe: Yeah. Or leave it in the truck.
Rodney: Don't pile the corn. Farmer, don't pile it.
Gabe: don't pile the corn.
Rodney: Don't pile the corn.
Gabe: Yeah. All right. I guess I have one last question. Does that carry hold past December? Or does it start to fall off?
Rodney: No, you can see. The market in Ohio is just set up to put the corn on the ground until Jan, Feb, March. Right? Gone. Even Dec, Jan, Feb. It looked like there was a little bit of carry, you're just covering interest after January. But it deteriorates after that. Into March, April, May, it's flat to worse.
Gabe: Okay. So be deliberate about your decisions.
Rodney: Yep. Do the math.
Gabe: Do the actual, put the pen to paper. Pencil to paper for me. Rodney gets to use a pen because he doesn't make mistakes.
Rodney: That's right. I use a whiteboard.
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