Monday, June 20, 2011

To store or not to store this year’s Soft Red Wheat Crop

By Cory Walters, Sam McNeill and Doug Johnson, University of Kentucky

Each year producers decide whether to store or sell their Soft Red Wheat (SRW) crop. Producers typically choose the latter and sell their crop off of the combine. This year the Chicago wheat (SRW) futures contract is offering a large storage incentive. The relationship between July 2011 Chicago wheat futures and March 2012 Chicago wheat futures is a plus $1.04/bu (March = $8.63, July = $7.59). Putting grain in storage AND selling a March 2012 futures contract will gain you an additional $1.04/bu. However, there are other costs and risk associated with doing this. Storage decisions should be made based upon the carry offered in the futures market, storage constraints (coming from other crops), harvest constraints, storage costs, opportunity costs of money, and other costs.

The largest cost of storage is the opportunity cost of obtaining cash (money). Foregoing money and holding grain in storage will cost you the interest gained from paying back outstanding loans or putting money in an interest bearing account. As an example, say you have an interest bearing account which pays 5% annually. Putting grain in storage in late June and delivering in February on a March futures contract adds up to 8 months. The interest foregone in storing grain adds up to $0.25 ($7.59/bu*.05*(8 months /12 months)).
Basis is the other source of price risk. Improvements in basis between now and delivery return more money to the producer. A weakening of basis costs the producer money. Producers should monitor basis regularly and take advantage of strong basis offers by signing a basis contract (which would be for February delivery if selling on the March futures contract).
Storing wheat in Kentucky during the summer presents several physical challenges that can impact profit margins. Freshly harvested wheat should be dried as soon as possible to prevent sprouting and suppress insect activity. Keeping the storage environment dry (relative humidity of air space between wheat kernels below 65%) is the most cost effective way of controlling mold growth and the mycotoxins they can produce. With average day-night temperatures in July and August approaching 80 degrees or higher, the recommended wheat moisture that meets this condition is 12.5% or lower (Table 1). Figure the cost to dry wheat below the base/market level of 13.5% moisture at about 0.5, 2.3 and 3.3 cents per bushel for each point of moisture removed with unheated air drying, bin drying, and high temperature drying, respectively. Drying costs will vary with the price of energy, labor and equipment, but consider this a cost effective way to control insect and mold activity. Moreover, drying costs are generally much less than other methods that may need to be taken if these problems occur during storage, as shown in Table 2. More information on drying and storing wheat is provided in Chapter 10 of ID-125 (
Though storing wheat can result in some economic advantages to the producer, it requires good insect pest management. The presence of insects or insect damage can defeat the entire advantage of holding the wheat past harvest time. We have developed a “16-Point Checklist for Controlling Insects in Stored Wheat”, which is attached to this article. The producer should understand that insect pest management in stored wheat is by-in-large a preventative effort. Additionally, many of the most important techniques occur before and during harvest, and are non-chemical. Though pesticides may be added to wheat that is being binned, due to the heat of the grain and temperatures in the bin, they will not last long. Of even greater concern is the lack of a control option as the grain is being removed for delivery. This usually occurs late in the winter when it is too cold to fumigate. So, preplan and proactively: reduce the initial insect population, slow insect growth when possible, and monitor the grain to detect developing problems early.

Table 1. Equilibrium moisture content of soft red winter wheat at different temperature and relative humidity levels. (Source: ASABE Standard D245.4.) Sam McNeill

Relative Humidity (%)
˚FEquilibrium Grain Moisture Content (%)

Table 2. Comparison of wheat marketing opportunities.

$ 7.59
$ 8.63 $ 1.04
$ 0.05
Drying 4 pts
$ 0.10
$ 0.05
$ 0.10
$ 0.02
Interest (5.0%)
$ 0.25
$ 0.57 Return after Cost
$ 7.59 $ 8.06 $ 0.47

In summary, wheat storage can be profitable when the futures market is offering a large carry and the producer follows wheat storage guidelines. The market can incentivize storage through offering a price in the future that is greater than the cost of storing grain to that time. Storing grain requires following guidelines; see 16 point checklist, to minimize the chance of insect and moisture issues. Benefits from storage continuously change and should be watched closely when deciding to take advantage of returns to storage through a storage hedge.

UK - IPM 16-Point Checklist for Controlling Insects in Stored Wheat
by Doug Johnson and Sam McNeill
Prior to Harvest
1. Clean all equipment thoroughly to remove old grain, trash and debris that might contaminate the new crop (combines, carts, trucks, receiving pits/hoppers, conveyers: use pressurized air/water) (storage bins: use a broom, shovel, and vacuum)
2. Remove spilled grain around pits/hoppers and storage bins to prevent contamination
3. Treat bin walls and flooring with an approved residual insecticide  (common names of currently approved compounds are Tempo and Reldan) Note: Most stored grain insects are resistant to malathion so it is NOT recommended!
4. Treat the outside base of all bins with an approved residual insecticide (Tempo)
5. Mow, spray or remove weeds/grass/vegetation around storage bins
6. Seal floor and fans, unloading augers or other openings with heavy plastic to prepare bin for fumigation
7. Fumigate area under perforated floors using product labels for instruction (currently approved products are Chloropicrin and Phosphine) CAUTION: Fumigants are restricted-use pesticides and require formal training for safe control See UK publications ENT-19 and ENT-47 for more information on fumigation
8. Post written notice that bin has been fumigated
9. Wait the required time before entering the bin--depends on product used and air temperature Note: Safe wait time ranges from 2 - 3 days at 70 degrees F to 4 - 5 days at 56 degrees F
During Harvest
10. Apply approved insecticide on unheated wheat as it's transferred into storage (It is best to use a DIFFERENT product than in Steps 3 & 4, thus Reldan is suggested)
11. Apply a "cap-out" treatment to the wheat surface after the bin is full
12. Dry wheat to 12.5 % moisture if it will be held through July
Note1: This keeps the air space between wheat kernels dry (~ 65% humdity) which retards insect activity and mold growth
Note: This moisture or "shrink" cost amounts to 4 cents/bu when wheat is $7.00/bu (see Fig. 1)
After Harvest
13. Insert pit traps into stored grain to track insect activity and check them once a week during the summer CAUTION: See UK publication AEN-39 to review safe methods of inspecting stored grain
14. Check for leaks in the bin around ladders, roof vents, temperature cables and other openings
15. Check wheat temperature and moisture weekly after binning for stability
16. Fumigate wheat prior to sale if insect populations reach economic thresh holds CAUTION: Fumigants are restricted-use pesticides and require formal training for safe control

See UK publications ENT-19 and ENT-47 for more information on fumigation
See UK publication AEN-45 for more information on aeration and inspection of stored grain

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