Corn, soybean and other commodity farmers trying to decide whether to sell the crop they harvested this fall or continue to store it have a big question to answer: Will storing the crop lead to greater profits later?
Although that is a matter of speculation, the returns on crop storage are lower than normal this year, according to Corinne Alexander, associate professor of agricultural economics at Purdue University.
"Buyers are saying, through price signals, that they are willing to pay a lot more right now because they need the grain," Alexander says. "The market isn't paying a lot to store, but that doesn't mean it's a bad idea. There's no easy rule of thumb."
Alexander recommends that farmers who choose to store their crop avoid putting it into commercial storage, which is less profitable than storing it on the farm.
The increase in crop prices primarily is the result of lower yields for different crops around the world. This means that supply is tight in relation to demand, Alexander says. That likely will raise commodity prices.
Also playing into the current high prices is a drought in Russia and lower-than-expected yield in U.S. crops.
There still is uncertainty about the actual size of the corn crop as well as what the demand for corn will be. Corn production nationwide is expected to drop by 4% from last year on yields averaging 154.3 bu./acre, compared with 164.7 bu. in 2009, according to a November report by the USDA.
Alexander says projections showed less than 1 billion bushels for the 2010-2011 ending stocks, which is a tight number. Demand for corn acres is expected to be high in 2011.
International circumstances also are playing into high crop prices. When Russia banned exports on wheat this year, countries that normally would import from Russia had to buy elsewhere. The result was increased demand for wheat exports from the U.S. and other countries, Alexander says.
"We're going into a year where we're expecting substantially higher prices for all commodities that are field-crop commodities, simply because there is going to be an acreage battle," Alexander says.