October 6, 2006
 

Farmers can maximise use of excess corn and soy this season

If estimates for this year's corn and soy were to be believed, there are chances of a higher volume of grain harvested this fall.

An increased volume would also mean producers running out of room in bins and shelling out more for storage space at the elevator. As a result, many producers might end up selling directly from the field.

Darrel Good, an agricultural economist at the University of Illinois however felt otherwise. He opined a better way to deal with the situation would be to deliver on a basis contract rather than just making a cash sale.

Also, price decisions could be deferred till they get a higher price, he added.

Another possibility could be to sell the cash corn and establish a position on the prospective market so that the ownership remained on paper. However, considering the recent volatile market, this could turn out risky.

An alternative that might offer producers some downside protection would be to buy a call option from the CBT.

Good explained, for selling call options that establish a price ceiling, one would want the ceiling to be high enough so that eventually he would be happy to receive that as a net price on current year's crop. In case the prices rose, one could decline to capture that, convincing himself he established a decent price.

All said, to maximise returns while minimising risks, Good said the best policy for farmers would be to avoid  putting all their  eggs in one basket.