By Andi Anderson
When farmers harvest their grain, they can choose to sell it right away or store it to obtain better prices later in the season. A new study from the University of Illinois Urbana-Champaign explores how Illinois corn and soybean producers make those decisions and why the cost-benefit evaluation of storage may differ across farms.
Agricultural commodity prices fluctuate in response to changes in supply and demand, which depends on the stockpile of grain inventories around the country — but economists don’t really don't know how farmers decide to sell versus store their grain.
“Economic theory provides guidance that Extension economists have long shared with farmers, but we always say that these decisions depend on the specifics of the farm operation. We haven’t tested the theory against real-world farmer behavior before now. That’s what our paper provides,” said study co-author Joe Janzen, Illinois Extension specialist and assistant professor in the Department of Agricultural and Consumer Economics, part of the College of Agricultural, Consumer and Environmental Sciences (ACES) at U. of I. Janzen is also a frequent contributor to the Illinois farmdoc project.
“Our data show farmers how their peers make marketing decisions and provide useful benchmarking for profitability to help them in their own decision-making. There is great year-to-year variability, and just because a decision is right in general, doesn't mean it's right in specific circumstances, so farmers need to be adaptable,” Janzen said.
The researchers plan to develop calculators that farmers can use to understand the costs and benefits of their grain marketing decisions. These tools will also be helpful for business and marketing consultants, extension personnel, and others who serve as advisors for farmers.
For this study, the researchers had access to a large database of farm records from the Illinois Farm Business Farm Management Association (FBFM). Their analysis focused on corn and soybean producers in Illinois who may hold physical inventories of those commodities on their farm. They collected comprehensive financial statements from nearly 3,000 farms over 18 years.
Photo Credit: gettyimages-giovanni1232
Categories: Illinois, Crops