When we have multiple years in a row of good crops nationally and then continue to build carryout, we often see two main fundamental consequences: lower prices and more carry in the futures market. Of course, lower prices are not a great ingredient to add to the farm profitability formula. However, the carries in the market do offer hope for both farmers and country elevators if treated properly.
First, let’s quickly define what we mean by “carry in the market.” Simply put, a carry market is defined by deferred futures months prices being progressively higher the farther into the future it gets from the nearby month. For instance, see futures quotes in the market shown in Table 1.
Table 1
Historically, this type of market structure has been the most common. However, until last year, we had not seen it in grain for a few consecutive years. The key question is: How can you use this market structure to capture opportunity, not only for the grain elevator, but also for the farmer?
For the price neutral, basis-trading grain elevator, capturing carry is the bread and butter of your merchandising program. Buy bushels at harvest, keep them in your bins, capture carry and get rewarded. Simple. However, that first step of buying the bushels early can be difficult in years like this one. The large carry in the market indicates how extremely valuable grain bins are this year. It is extremely difficult to capture that value through fees or any method other than owning the basis at harvest.
Make sure your policies and goals align with getting basis ownership at harvest as much as possible.
Grain elevators also have a duty to help their farmer customers capture the opportunities available to them and large carries can be opportunities for the farmer, as well. This may seem counterintuitive to some, but the only way to capture the full value of these carry markets is to make selling decisions sooner.
Many producers look at a carry market like this and assume it gives them more time to wait to sell because, after all, the prices are higher the farther out you go. This line of thinking is a recipe for disaster and has led to some extreme disappointment among grain producers.
Allow me to illustrate this point. It’s fall and harvest is winding down. The local elevator spot bid for corn is $3.47, but their January bid is $3.80. The farmer decides since January bid is better, he will wait until then. When January rolls around, the elevator’s bid is now $3.47 … again. That 33 cents of “carry in the market” vanished. The farmer didn’t get it and neither did the elevator. This has been a common scenario played out over and over again at locations all across the country.
In order to capture all of the premium offered by the carry in the market, you must sell early for the deferred delivery periods while there is still carry to be captured. Otherwise, many times the carry vanishes over time.
When farmers forward contract, they capture the carry in the market
A great example of this has been wheat over the last several years. Here is a chart showing how much of a price premium above harvest price was captured over the last 15 years on average:
That’s right, over the last 15 years, on average, a farmer could have sold more than 40 cents per bushel better by selling one full calendar year prior to harvest. This average even includes the last few years of inverted (no carry) markets. In years of carry, like there is now, that number is much higher.
For instance, there is currently a 65-cent carry from Dec ’24 to Dec ’25. Other grains have similar patterns. Corn has a 40-cent carry until next year and soybeans have a 50-cent carry until next year. The farther ahead of harvest you can sell in a carry environment, the more you can capture.
This doesn’t even require the farmer to have their own bins. They can sell the carry well ahead of harvest for harvest delivery and capture all of that.
For those with farm bins, this applies as well, but to an even greater degree. They can sell even farther out into the future and capture not only more carry, but the post-harvest basis improvement as well. As the owner of the bins, the farmer is entitled to all of that and can capture it by selling early for deferred delivery. Using farm bins as a reason to wait longer to make selling decisions is not a prudent way to achieve returns on grain space. The way to achieve returns to grain space is through capturing carry and basis improvements.
While large supplies and low prices do not always make for a fun farm marketing year, those who know how to harness the power of the carry in the market can still find a way to sell prices that work. How far ahead can your producers sell? Plan ahead and help them get offers in ASAP — and keep all the dollars you can in your community!
