Strategic Cash Flow Considerations for Grain Sales and Inventory Management
As the harvest nears completion across most of the Compeer territory, it’s an opportune time to delve into cash flow considerations with respect to managing grain sales and inventory. With current operating interest rates approximately double that of two years ago, the costs associated with holding grain have also roughly doubled. Here are some cash flow considerations to bear in mind when making decisions about grain inventory management.
Costs associated with holding grain
Assuming an interest rate of 8%, the current interest cost on a bushel of corn is over 3 cents a month, and for soybeans, it amounts to 8.5 cents a month. If these bushels are in commercial storage, the combination of interest and commercial storage costs can quickly approach 6.5-7 cents a bushel for corn and 11-13 cents a bushel for soybeans. While storing grain can yield dividends, it’s crucial for producers to maintain realistic expectations and have a plan for those bushels, recognizing that as time is money. Storing grain commercially until next summer could easily cost 50 cents a bushel for corn and close to a dollar on soybeans.
Farmers have various tools at their disposal to manage this situation, including basis contracts, futures and options, each with a range of strategies. Always consult with local professionals for ideas and advice, as grain markets often exhibit very local characteristics.
Interest rate considerations
Over the past 15 years, farmers have been fortunate to experience a period of very low interest rates, reducing interest costs for carrying grain to a level where it wasn’t as significant in the budget. However, in today’s economy, interest expense is becoming a more prominent factor in the bottom line. As interest rates rise, farmers should closely monitor interest and carrying costs when making grain marketing decisions.
As I write this article, harvest is winding down here in Northern Illinois. By the time this reaches many of you, I hope your harvest is wrapped up, and you find yourself dealing with a substantial crop.
Bob Foerder is a Financial Officer at Compeer Financial. For more insights from Bob and the Compeer Team, visit Compeer.com