SUMMARY This is a study of economic factors important to farmers in the Coastal Bend when deciding whether t0 W” "m"! ‘“"° few-g?‘ “w/ l“ sell grain sorghum at harvest or to store it in commercial '"°" “W i-r‘ 'T_L'_,w; ,§,fs“’)<. l. elevators for later sale. During the harvest months of '—"—T‘—llL_ESM ' A Sim”, ' June and July, the grain sorghum price in the Coastal swam: -. saw-k?“ ~ - B . . . . . ail“!- ATE}.L ' com _ ‘“°'“‘>(_ ./ - end usually is similar to the average Texas price, with , ' a’ gunk >._<§,...... 2-; the June price slightly above and the July price slightly ‘“"‘/..,.1....'..v... \ , below the State price. After July the Coastal Bend “m” “m” x*-=° _ margin between harvest and later prices usually was insufficient to cover the farmer’s cost of storage. At times price decreased after harvest instead of increasing. This would add to his losses if the farmer were depend- Reporting District. ing on the market in his operations. With charges for g storage that prevailed in the Coastal Bend during 1956, price increases would have more covered costs of storage on grain harvested and stored in June during 2 of the 10 years st’ and on grain harvested and stored in July during 5 of the 10 years. However, there was n eral consistency in the months when peak prices occurred, which adds to the risk of storing,’ for future sale. With the price-support program in effect it has not been necessary for the farmer to r the market altogether in deciding whether to sell at harvest or store. If the effective Com' Credit Corporation loan rate (the support price minus the storage costs until the March 3i feit date) was greater than the price at harvest, the farmer could benefit by putting gr storage under CCC loan. If prices later moved above the effective rate by an amount that; than covered the costs of redeeming the grain he could pay off the loan and sell on the m If prices did not increase sufficiently to redeem the grain, he could forfeit it to the gove ‘A The price-support program in effect during the 10-year period probably affected thl, sonal margins between prices at harvest and later in the marketing season, making the A than would have prevailed in afree market. The study provides information for computing the costs of redeeming grain sorghum: CCC loan in the area in order for the farmer to determine whether the market price in any is such that he can reap a profit by paying off his loan and selling the grain on the mark also provides an outline of the different charges the farmer incurs when storing his grain each of three alternative storage situations available to him. ACKNOWLEDGMENTS The authors wish to express appreciation to the following people for help in this stué C. Childs, statistician in charge of the U. S. Department of Agriculture Crop Reporting Serl Texas; Jack 0. Bradshaw and Tim Moore, Agricultural Stabilization and Conservation State USDA; Reed S. Hutchison and D. L. Calderwood, Agricultural Marketing Service, USDA; and Sorenson, Jr., Department of Agricultural Engineering, Texas Agricultural Experiment Station. a ‘This study was made under the Texas Agricultural Experiment 'Station’s State Contri’ Project to the Southern Regional Cooperative Grain Marketing Project 'No. SM-11, “Marketinf Utilization of Grain in the South.” ._ Boundary of Coastal‘ Figure 1. Coastal Bend area and the Eigh I; ,_...‘._J.-i._i.i--d ru-mmeJi-AFB ,2 SORGHUM HAS BEEN INCREASING IN IM- e as a source of income to Texas farmers. Qiharvested in Texas have doubled in about rs from slightlyover 2 million in the late -¢ to over 4 million in the Fifties. Actually, harvested was 5,782,000 in 1954, and it (an all-time high) in 1955. It fell l‘ 4,777,000 in 1956. ' V, increase in acreage devoted to the crop greater in some areas of the State than ‘rs. Farmers in the Coastal Bend were just '1 to the production of grain sorghum in the hirties. The agricultural census shows acres harvested in 1939 in a 13-county LTabIe 1. The 1954 acreage was almost Ytimes as large as the 1939 acreage, and f.‘ percent greater than the 1949 census adjustments of this type and extent (area create new problems, especially where duct, such as grain sorghum, is involved. tudy analyzes the problem of whether to lain sorghum at harvest or store for later ("the farmer sells his grain at harvest, he ~ further costs since ownership of the grain -. to the buyer at that time. If he retains hip and stores the grain, he incurs storage ‘ndling expenses until it is sold. In order i’ to profit from storing, the price later in it»: son must be sufficiently greater than the 7.; price to more than pay all costs of hold- e grain. is study provides information about (1) asonal change in prices of grain sorghum * Coastal Bend area, _(2)_ the costs o_f stor- ind holding the grain in commercial ele- and Warehouses, (3) the relationship be- ~ the seasonal change in price and the costs lding the grain in storage and (4) other erations that may affect profits from A; grain sorghum. A SEASONAL PRICES e production of grain sorghum, as_ well as nsumption as feed for livestock, is wide- ' nt professors, Department of Agricultural Econo- and Sociology, Texas Agricultural Experiment m , Seasonal Price Change and Costs oi Storing » Grain Sorghum in the Coastal Bend CLARENCE A. MOORE and HOWARD S. WHITNEY* spread. The consumption and production areas are not always the same, since livestock is fed in many areas where grain sorghum is not pro- duced or is produced in amounts insufficient for total feed grain needs. Therefore, seasonal price behavior in the Coastal Bend is affected by grain sorghum production conditions and feed consumption needs in areas far removed from that area. Grain sorghum prices also are affected by the production and prices of other feed grains, especially corn. The possible effect of the government’s price-support program on‘ the sea- sonal behavior of grain sorghum and other feed grain prices cannot be ignored. Information on grain sorghum prices specific to the Coastal Bend area is limited; no official published price series is available. Most of the analysis in this study relies on unpublished re- ported midmonth farm prices for grain sorghum in the Eighth Crop Reporting District, supplied by the Division of Agricultural Estimates, USDA. The location of the Eighth District compared with the Coastal Bend area is shown in Figure 1. Since harvest of grain sorghum usually starts in June and reaches its peak in July in the CONTENTS Summary .................................................. __ 2 Acknowledgments __________________________________ __ 2 Introduction ______________________________________________ __ 3 Seasonal Prices ........................................ __ 3 Eighth District and Texas ____________ __ 4 _ Deviation from Average ________________ __ 4 Trends and Cycles __________________________ __ 5 Price-support Program __________________ __ 6 Farmer’s Storage Cost .......................... __ 7 Redeeming Grain Under CCC Loan ...... -- 8 Price Change and Storage Costs __________ __ 9 Ten-year Cost-price Situation ...... -- 9 Annual Change ................................ __10 Ups-and-downs in Price __________________ __12 Other Considerations ______________________________ __12 Price Supports .................................. __12 a Farmer’s Need for Ready Cash ...... -.12 PRICE PER mmnnsnwsxcm (mums) , N 1;. U! I TABLE 1. GRAIN SOBGHUM ACREAGE HARVESTED IN 13 COUNTIES, COASTAL BEND AREA, BY CENSUS YEARS . Years C°“““°s 1999 1944 1949 1954 — —- — —- Acres — — — — Aransas 83 1,240 735 1,156 Bee 2,436 7,369 14,532 21.484 Calhoun 586 2.302 2.858 21.218 DeWitt 6,000 3,386 4,740 5,230 Goliad 1,608 1.382 2,992 6,285 Iim Wells 2.357 - 14.355 33,574 39,810 Karnes 1,887 p 10,660 9,905 15,670 Kleberg 2.852 7,181 8,224 15.363 Live Oak 1,668 7,295 24,161 22,183 N ueces 24,558 95,410 132.506 ' 185.054 Refugio 1,592 8.379 11,726 26,077 San Patricio 14.660 65,763 68,048 119.985 Victoria 3,997 2,957 7,261 14.677 Total 64,284 227,679 321,262 494,192 Increase from previous census year (percent) 254 41 54 Coastal Bend, the marketing season in this study begins in June and ends the following May. Eighth District and Texas Figure 2 shows the normal relationship be- tween the behavior of seasonal prices in the Eighth District and Texas as a Whole for mid- month farm prices over the 10 seasons, 1946-47 through 1955-56. The June harvest of grain sorghum in the Coastal Bend area draws a favorable seasonal price since it is the first of the season’s “new- Bend area was true on both the early and f crop” grain sorghum on the market in h, The June price in that area is usually ab“ Texas price. I The average July price in the Coastal is below ‘the average Texas price beca V heavy harvest in the area at that time. As sorghum harvest moves north and West f 1.- Coastal Bend, the price in ithe Eighth l' tends to pull away from, and above, the a‘ Texas farm price. Two reasons for this r ship are: the pressure of heavy harvest s on price in areas farther north and west to depress the average Texas price as co - with the Coastal Bend price; and the ~. shipping points are nearer the Coastal Ben_ grain markets, so less transportation costs be deducted from the shipping point prict in Central, North and Northwest Texas. ’ The tendency for the average Coastal’ price to pull away from, and above, the a Texas price for grain sorghum as the _ season advances north and west of the ~ parts of the 10-year period as shown in (A) and (B) of Figure 3. There were greater margins between th age June and July harvest month prices 1f peak prices later in the season in the it District than in Texas as a whole. ‘ Deviation from Average Individual monthly prices, from whi l - averages were computed, varied widely, T 4‘ m . q o l o_ I / __§~ I!’ 4 1 *0 / ’, ' f~ ' Q 4'0‘ I l‘ \ ,¢ ~__ ,1 (- Eighth District Pr ‘1 0',’ ~\‘o' i \ v’ \‘ ’r” ' 204.0 no ' \\ ”d-’ \ p -:' \ I’ . \ ,' 1 \ ’, (- Texas Price » q - "1 I’, 2.25 _. \\ ’I o___ ,' _”/ . 2.10 do an - o l l 1 1 1 1 1 I 1- 1 I June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. lttar. Apr. g Figure 2. Seasonal price change, Texas and Eighth District, l0-year average. Average of midmonth farm prices through 1955-56. 4 9 A, Average of mid-month farm prices B. Average of mid-month fazm prices 19146-117 through 1950-51 1951.52 flu-ough 1955.55 1° ' "on-O I. I , ,1’ I°\ I’ /°\\ f’ Eighth District Price ~)/ \\ I I! x0! I .. I __ .-o’ I; -o- I,’ (- Eighth District Price b’ °"~- T’ I o‘ I I ’ Texas Price -r (- Texas Price I I I I I I I I I I I I I I I I I I I I I I I I JJASONDJFMAII JJASONDJFHAIL Figure 3. Seasonal price change, Texas and Eighth District, 5-year periods. gr example, while the average July price in covering several years would not necessarily 0-year period Was $2.22 per 100 pounds, occur in any one year. There is risk and un- lwest July price was $1.71 and the highest certainty in predicting seasonal price margins _ .17. The July price varied from 95 cents for planning purposes. The risk is greater if the ‘the average to 51 cents below it, an abso- margins between the harvest and later prices jnge of $1.46. vary Widely in amounts from year to year or if _ _ the peak prices from year to year are not con- . general» Iifrlces dllnng the 131s? 5 Year? 9f sistent during the time they occur—that is, if 1 @7961‘ Perlod Vérled 163$ than 111 the flrst or 2 months cannot be designated as the time in 1'8 $11166 P116 Drlce-SUDPOTY Program Played which the seasonal prices usually reach a peak. peter role 1n the latter period. The only ex- ns were the August, September and October Trends and Cycles _ Because the direction and extent of the sea- I ese data indicate that what is generally sonal behavior of price are important in a study regarding the direction and extent for the such as this, it is necessary to consider the ex- nal behavior of prices based on an average tent that long-run trends of many years or A 2. AVERAGE MONTHLY GRAIN SORGHUM PRICES AND THE RANGE BETWEEN HIGH AND LOW MONTHLY PRICES ‘ BY PERIODS, EIGHTH DISTRICT, 1946-47 THROUGH 1955-56 I une Iuly Aug. Sept. Oct. Nov. Dec. Ian. Feb. Mar. Apr. May — — — — - — — — Dollarsper100pounds —— — — — — — — - 2.53 2.22 2.19 2.30 2.38 2.42 2.48 2.54 2.48 2.64 2.61 2.66 high 3.41 3.17 2.82 3.12 3.21 3.36 3.68 3.79 3.09 3.60 3.68 3.58 low 1.99 1.71 1.52 1.66 1.47 1.72 1.86 1.93 2.04 2.00 2.05 2.09 1.42 1.46 1.30 1.46 1.74 1.64 1.82 1.86 » 1.05 1.60 1.63 1.49 2.59 2.31 2.19 2.30 2.46 2.45 2.47 2.59 2.45 2.69 2.68 2.69 : high "i ‘~»~ 3.41 3.17 2.69 3.12 3.21 3.36 3.68 3.79 3.09 3.60 3.68 3.58 _ low *- 1.99 1.75 1.77 1.77 1.84 1.81 1.86 1.93 2.06 2.20 2.13 2.09 élute range 1.42 1.42 .92 1.35 1.37 1.55 1.82 1.86 1.03 1.40 1.55 1.49 2.47 2.13 2.18 2.31 2.30 2.39 2.49 2.49 2.51 2.58 2.53 2.63 - : high 2.93 ' 2.61 2.82 3.09 3.00 2.96 2.98 2.98 2.94 2.90 2.92 2.92 y low 2.20 1.71 1.52 1.66 1.47 1.72 1.86 1.96 2.04 2.00 2.05 2.23 lute range .73 .90 1.30 1.43 1.53 1.24 1.12 1.02 .90 .90 .87 .69 shorter recurring cycles of more than one season in length affect the seasonal price behavior. There Was no discernible upward or downward long-run trend in grain sorghum prices over the 10-year period studied, indicating the results drawn from the seasonal behavior of price over the period could not be affected materially by trend. Studies indicate there are no recurring cycles in grain prices similar to those in livestock prices. However, the midmonth farm price behavior over the 10-year period, Figure 4, shows ups and downs covering more than one season. The Eighth District prices appeared to be at a peak in the 1947-48 season, and turned downward thereafter. The low was reached in the latter part of 1949 through 1950 (about 2 years from peak to low). Prices then turned upward and the next peak appeared in 1952 (2 years from low to peak) . The general movement downward after the 1952 peak, appears to have reached another low in 1955 with possibilities of gradual recovery thereafter. A study of this 10-year period may give the impression that recurring cycles of 4 or 5 years’ duration occur in grain sorghum prices. However, a study of such prices over a 35-year period indicates that while ups and downs as shown in Figure 4 occur, they are not of a consistent cycle nature. Actually, the data shown in Figure 4 may be interpreted as being a result of inflationary pressure on prices immediately following the end of World War II, unfavorable supply and demand relationships depressing grain sorghum prices in the late Forties, with another upward pressure on prices beginning with the Korean conflict. The cause of these ups and downs of more than 1 year's duration is attributable to conditions in our general economy rather than to the nature of the market for grain sorghum. Price-support Program Over a period of years in a free market oper- ation, the difference between the price at harvest 4}09 , offered for sale at that time and tends to and the price later in the marketing =, expected to cover the cost of storage. Since farmers sell their grain at harvest, so p necessity and others to avoid the risk o certain prices later, the heavy supply put ..] market at harvest depresses the price. B_ much of the grain is sold “at harvest, th less to sell later in the seaspn. The price =_ up for this lighter supply as the season adv Thus, the lower harvest price and the 1 higher price result in greater returns storage operations. ' The present price-support program mat changes the free market situation. Its obj is to support the price at a parity level 1 would not be necessary if the market price l sufficient to maintain that level. Therefor price-support rate generally is expected i‘ above the price which would prevail in at market, especially during harvest season. t, moving into storage at harvest under Comm_ Credit Corporation loan, decreases the s‘ tain a higher price at harvest. Since more :4 is available for sale from storage later i, season than under free market conditions, results in lower prices after harvest than ~i prevail otherwise. Higher prices at harves lower prices later mean a smaller seasonal m in price under the price-support program i in a free market. Table 3 compares the Coastal Bend loa port price at harvest with the Eighth price of grain sorghum from 1948 through The market price in June 1948 was conside above the loan-support level but had decr $1.14 by the middle of J uly-7 cents belo lowest county loan-support price in the L Bend. The loan-support price announcemen that year may have caused buyers to bid fi the price to a greater extent than norms harvest got into full swing. '5 The effective price support (the price farmer actually obtains if he forfeits his gr; U) o O O l mm: m nmmmmarcm (nomns) H N ‘o .2: O O we? 1946-47 1947-43 1948-49 1949-50 Figure 4. Midmonth farm price for grain sorghum, Eighth District. 1946-47 through 1955-56. 1950-51 1951-52- 1952-53 1953-54 1954-55 195s- ‘iIUNE AND IULY REPORTED PRICE. 1948-1955 ‘A BASIC LOAN-SUPPORT PRICE IN THE COASTAL BEND COMPARED WITH THE EIGHTH DISTRICT MIDMONTH CCC 1oan- ‘Midmonth farm price Decrease Difference between support ‘ ior from Iune lowest support price and price‘ Iune Iuly to Iuly Iune price Iuly price — — - Dollars per 100 pounds — — — -— —- — Cents per 100 pounds — — — 2.35 - 2.50 3.41 2.27 114 106 — 7 2.12 - 2.26 2.13 1.75 38 1 —37 , 1.89 - 2.04 1.99 1.75 24 10 —14 2.19 - 2.35 2.45 2.08 37 26 --11 2.44 - 2.61 2.93 2.61 32 49 17 2.49 - 2.67 2.55 2.31 24 6 -18 2.52 - 2.62 2.22 1.96 26 — 30 —56 1.98 - 2.07 2.20 1.71 49 22 —27 j» 30 cents below the basic loan-support since storage costs (until March 31) and andling charges are deducted from the support rate. Since the July (heavy V ) market price was more than 30 cents i, the lowest county loan-support price in of the 8 years, the loan-support price ly was effective in keeping harvest market lhigher by inducing some of the grain into f under CCC loan during the heavy harvest j sorghum in the area. Too, Eighth Dis- lune and July prices include price reports unties farther away from coastal shipping ,as well as Coastal Bend counties. There- the average price is probably lower than ierage in Coastal Bend counties because of fgher transportation cost buyers in the counties had to consider when pricing T summary, whether it pays the farmer to fhis grain for later sale depends on an in- p in price after harvest large enough to ;than cover storage costs. The price-sup- program tends to- decrease the size of the al increase in price, thus giving less re- to storage. FARMER’S STORAGE COST e farmer’s cost of storing and holding grain um in commercial elevators includes all incurred which could be avoided if he sold ain at harvest. Charges for storing and ing grain in the Coastal Bend area are l on the maximum allowed under the Uni- _ Grain Storage Agreement of the CCC. ugh storage charges are consistent, the r’s cost varies, depending on the storage ' ion. Farmers in the Coastal Bend area j three alternatives for storing their grain, with a different cost situation: (1) grain F» under CCC loan and forfeited to the ment on the following March 31; and grain stored under CCC loan and later re- ed before the date of forfeit; and (3) grain J» on the farmer’s own account, not under l rice-support program. 3» m the lowest to highest loan-support price in 13 counties in the Coastal Bend area. Five separate charges must be considered in determining the total cost a farmer incurs if he stores grain: Drying charge. The grain usually is market- ed on a 15 percent moisture-content basis during the harvest season. If the grain is stored in com- mercial elevators, either under CCC loan or on the farmer’s own account, it must be dried to 13 percent or less. Charges vary in the area, but the most common charge is 6 cents per 100‘ pounds for drying grain from 15- to 13 percent. Uniform-storage charge. This includes the cost of storing, insuring, conditioning and care of the grain in storage. The 1956 rate was .047 cent per bushel per day of storage, or slightly more than 2.5 cents per 100 pounds per month. Loan-handling charge. If the grain is put in storage under CCC loan there is a 1 cent charge per 100 pounds for executing the loan papers and other CCC office expenses. Receiving and loading-out charge. This charge, commonly referred to as the “in-and-out” charge, by commercial elevators can be avoided by farmers who sell their grain at harvest. It amounts to 7.25 cents per bushel for receiving and .75 cent per bushel for loading out--a total of 8 cents per bushel, or 14.2857 cents per 100 pounds. If grain under CCC loan is forfeited, the government pays the in-and-out charge and it is not a cost to the farmer. But if the grain is redeemed from CCC loan, the farmer must pay the in and out charge. Interest. If grain under CCC loan is redeem- ed, the farmer is charged interest at the rate of 3.5 percent on the amount of the loan for the period of its maturity. If grain is stored by the farmer on his own account, not under the price- support program, interest is a direct cost if he must borrow funds to finance his storage oper- ation. If he uses his own funds to finance storage, and by so doing foregoes an opportunity to use those funds elsewhere at a profit, his interest is an indirect cost of storage. However, if he finances storage with his own funds, which otherwise would be idle and earning no returns 7 TABLE 4. FARMERS COST ITEMS UNDER THREE STORAGE SITUATIONS ' Stored under Stored on farmer's CCC 1mm and own account not Forfeited Redeemed under CCC loan Type of charge Drying Yes Yes Yes Uniform storage Yes Yes Yes Loan handling Yes Yes a No Receiving and loading out No Yes Yes Interest No ' Yes 1 ‘If the farmer finances storage with his own funds. and has no alternative use for those funds during the storage period, interest should not be included as a cost. Otherwise it should be included. during the storage period, interest should not be counted a cost of storage. Table 4 indicates the charges the farmer pays when storing grain sorghum under each of the three situations described. , The total storage cost under the three situa- tions, accumulative monthly from the time of harvest, is given in Table 5. The only expenses incurred by the farmer who puts grain under CCC loan and forfeits it the following March 31 are the drying charge, uniform-storage charge and loan-handling charge. These expenses are paid by him at the time he puts grain under CCC loan. If he does not have a warehouse receipt which shows that the full amount of the uniform-storage cost through March 31 has been paid, that amount will be deducted from the basic support price in determining the amount of the loan he receives. According to CCC deduction rates the uni- form-storage cost is 24 cents per 100 pounds if TABLE 5. FARMERS COST OF STORING GRAIN SORGHUM IN COMMERCIAL ELEVATORS IN THE COASTAL BEND AREA. 1956 Total cost of storing grain Cost on grain under CCC loan‘ not in CCC Month If forfeited? If redeemed“ loan‘ Iune Iuly Iune Iuly Iune Iuly — — — Cents per 100 pounds — — — IulY ’ August 31 29 27.6 24.5 _ 27.4 23.9 September 31 29 30.8 27.7 31.0 27.5 October 31 29 33.9 30.8 34.5 31.0 November 31 29 37.1 34.0 38.1 34.6 December 31 29 40.2 37.1 41.6 38.1 Ianuary 31 29 43.4 40.3 45.2 41.7 February 31 29 46.6 43.5 48.8 45.3 March 31 29 49.6 46.5 52.2 48.7 April 31 29 53.2 50.1 55.8 52.3 May 56.7 53.6 59.3 55.8 ‘Costs are computed assuming grain is stored about the middle of the two harvest months. ZSee Table 4. column 1. “See Table 4. column 2. Interest charge after March is com- puted at 6 percent rather than 3.5 percent since the farmer must redeem his grain not later than March 31. ‘See Table 4. column 3. Includes a 6 percent interest charge and assumes grain valued at $2 per 100 pounds. 8 » i’. grain is stored the middle of June and 2, if stored the middle of July. The 1 cen handling charge and 6 cents drying charg’ the total cost of storing and holding '< which is later forfeited to the government‘ and 29 cents from June and July, respecti" the following March 31 as shown in col‘ and 2 of Table 5. The cost is a flat cha the time it is put in storage, covers the > through March 31 (forfeit date), and y? tions are made to the total charge in sub_ months. A Columns 3 and 4 show the total accum, storage costs by months on grain placed‘ CCC loan and later redeemed by the fa sale in private market channels. The J pays a receiving and loading-out charge interest charge on the loan at 3.5 per f, maturity, in addition to the charges alr ! cussed, if he redeems his grain. Inter charged at .6 cent per month, an amoui sistent with a CCC loan of about $2 if pounds. The in-and-out charge amounts to’ 14.3 cents per 100 pounds. If grain was‘ the middle of June and redeemed for s] middle of September, the total cost of =- would amount to approximately 30.8 cen I 100 pounds. If redeemed and sold the a the following March it would amount l’ cents. Thus, the farmer’s storage cost on, stored under CCC loan and later redeem fore March 31) for sale on the market in, from 24.4 cents for 1 month to 56.7 cen 100 pounds for 11 months of storage. i The cost on grain stored on the farmer? account not under CCC loan is shown in c, 5 and 6. It is the same as the cost of s, under CCC loan and later redeemed for sal two exceptions: the farmer does not ha: charge of 1 cent per 100 pounds for ex, CCC loan papers, and interest is charge percent rather than the 3.5 percent charg CCC. l REDEEMIN G GRAIN UNDER CCC L0 A knowledge of storage costs provides a; for determining the market price at W v would pay the farmer to redeem his grai ghum from CCC loan for sale on the mark do so he takes the effective loan-support r, the time of storage, adds the costs he would} should he redeem ownership of the grainf particular time, and if the market price time is greater than the effective support,‘ plus the costs, it-would pay him to rede, grain and sell on the market. _ The basic loan-support price by count the Coastal Bend area varied in 1956 from, to $2.27 per 100 pounds. The effective loa port price is computed by deducting the l_ loan-handling charge and the uniform-s charge from the basic support price. Th‘ form-storage charge is 24 cents if grain is ' APPROXIMATE cosrs 01-" REDEEMING GRAIN soncmrm PLACED UNDER ccc LOAN IUNE 1s Accumulative cost oi redeeming grain j . of In-and-out Interest Uniform storage Total charge charge‘ chargez cost“ — — — Cents per 100 pounds —. — — 14.2857 .6 2.5536 17.4 14.2857 1.2 5.1056 20.6 14.2857 1.8 7.7076 23.8 14.2857 2.4 10.2612 26.9 14.2857 3.0 12.8632 30.1 14.2857 3.6 15.4168 33.3 14.2857 4.2 18.0188 36.5 14.2857 4.8 20.6208 39.7 14.2857 5.4 22.9708 42.7 at 3.5 percent on the amount of the loan. This ato about .6 cent per 100 pounds per month on a $2 an. wed from the Uniform Grain Storage Agreement rate cent per bushel per day by converting to cents per ttnds per day and multiplying by the days in each __l d to the nearest tenth of a cent for convenience. iddle of June and 22 cents if stored the of July. The effective support price ed about $2 per 100 pounds for grain the middle of June in the Coastal Bend v: farmer faces the alternative, once the "is stored under CCC loan, of forfeiting it to vernment and retaining the effective sup- rice ($2 in our example) or redeeming lsell on the market, by paying off the loan. ble 6 contains the 1956 cost of redeeming B in sorghum. If the farmer pays his CCC n any particular month in order to sell his , 0n the market, he must obtain a price that ater than the effective support price plus st, shown in the right column of Table 6, is to profit from redeeming the grain. For le, if he redeems the grain in November, ‘his effective support price was $2 when t the middle of June, the effective support 1 plus the cost of 30.1 cents to November is ;' $2.30. Unless the market price in Novem- a ceeds $2.30 per 100 pounds it would not him to redeem the loan. If the effective _- price were only $1.95 when the grain put under CCC loan the middle of June, a et price greater than $2.25 ($1.95 + $0.30 ‘ming cost) would justify paying off the lloan, redeeming his grain and selling it on market. Similar computations to those in 6 can be made for grain stored in July, will show at what price the farmer can '_ to redeem his grain. Amos CHAjNGE AND STORAGE COSTS A e previous analysis of price behavior was 9- on unpublished data for the Eighth Crop rting District of Texas, with prices used as ed. These data were used to compare the ict with the Texas price, and to note the longer term nature of the behavior of farm price for grain sorghum. However, for comparison of the seasonal price change with storage costs to determine the relative merits of selling the grain at harvest or later in the marketing season, an adjustment in the price data is necessary. A 6 cents drying charge for decreasing the moisture content from 15 to 13 percent was in- cluded in the storage costs. Farmers sell grain at harvest as it comes from the field, and the price is based on a 15 percent moisture content. Stored grain must be dried to 13 percent or less, and price quotations later in the season are for 100 pounds of 13 percent grain. Since the grain loses weight when moisture is removed, this weight loss, as well as the drying charge, must be accounted for as a cost of storing. The value of this weight loss depends on the grain selling price at harvest; this price varies from year to year. Therefore, the cost of this Weight loss, is included in the seasonal prices of the grain sorghum. In the drying process grain sorghum loses slightly more than 1 pound in moisture weight for each percent of moisture removed. Thus, 100 pounds of 15 percent moisture grain becomes onlv 97.7 pounds if stored for sale later and dried to 13 percent. To correct for this weight loss, the harvest price per 100 pounds was divided by .977 to obtain a price at harvest that is comparable to the price later in the season for an equivalent 100 pounds of grain at 13 percent moisture con- tent. This adjustment has been made in the June and July prices used for the analysis in this section. Ten-year Cost-price Situation Figure 5 shows the relationship between storage costs and the 10-year average change in price from June. Figure 6 compares costs with price margins from July. The storage costs used were those a farmer incurred from storing his grain on his own account not under CCC loan. If the average situation prevailed, the farmer would have lost money from seasonal decreases in price and incurred storage expenses as well had he consistently stored his grain harvested in June, with the exception of March, April and May. During these 3 months he would have recovered a small part of the storage costs by selling at a price higher than that of the previous June. Since July is a low price month, the price later in the season (after the low August price) moved above the July price and provided the farmer some returns from his storage. The average returns for the 10-year period would have allowed the farmer to recoup some of the storage costs, but were not sufficient to cover the full storage costs in any month. 6O ._ ~ r 4g __ z z f I ‘v Interest costs 1 / / 4 7 4 4 4 y Z . 2 f 2 + Storage costs _ / j / f interest; Z z a n / / /4 - 2 “ / / / ~ g / / g c: f f / H / / 4 § 4 4 4 g Z Z & a fi // E o . g n: i? é °-2o _ June and -1,0 - 'p1‘ic68, 19‘ through 1 average. _.6Q I I I I I I I I I | l Figure 5. Seasonal price margins from Iune to subsequent months and the cost of storing grain sorghumg This is an average situation and shows what would have occurred had the farmer stored con- sistently on his own account, not under CCC loan‘. It does not adequately show what occurred in any 1 year. Too, the seasonal margin be- tween harvest and later prices registered during the period of this study probably was affected by the price-support program. TABLE 7. COST OF STORING GRAIN SORGHUM COMPARED WITH PRICE CHANGES FROM IUNE BY SEASONS? THROUGH 1955-56. COASTAL BEND AREA Annual Change Tables 7 and 8 show the relationship f costs of storing and seasonal price margi June and July to later months, respectiv, seasons. In 2 of the 10 seasons, 194 “w 1947-48, the increase in price after Jun, than covered the costs of storage, Tablej the 1946-47 season the farmer could ha‘, Seasonal price change from Iune by years’ ' ‘fl Month Storage c9511 1945-47 1947-48 1948-49 1949-59 1959-51 1951-52 1952-53 1953-54 1954-55 _. _. _- - -- - -— — — — Cents per 100 pounds -— — -— — —, — — —- h’ Iuly 23.8 592 —2U -117 -—39 ——25 -—38 —33 —25 ——25 Aug. 27.4 1 —18 —-147 -—41 —25 —-39 —18 -—28 —17 sepl. 31.9 ——16 25 —125 ——41 -—2U ——22 9 —-21 —15 0C1. 34.5 422 34 -119 —-31 -—2U —-12 l ,9 —-27 3 NOV. 38.1 5 492 —-1U6 -37 —-12 12 —— 4 -—28 6 Dec. 41.8 9 —55 812 -— 99 —-32 15 39 -— 2 —23 14 Ian. 45.2 —-48 922 —- 97 ——25 44 33 -— 2 — 7 —17 Feb. 48.8 —43 22 —-111 —-12 43 33 -— 8 -— 9 — 8 Milt. 52.2 1 732 ——1U7 2 5U 37 ——19 12 14 Apr. 55.8 14 812 ——118 —— 5 38 41 ——24 21 —22 MGY 59.3 23 712 -—194 -— 9 4U 41 —27 13 25 ‘Costs ior grain stored on the farmer's own account, not under CCC loan. ‘These figures are seasonal price increases that more than cover storage costs. l0 1' THROUGH 1955-56. COASTAL BEND AREA ’ COST OF STORING GRAIN SORGHUM COMPARED WITH PRICE CHANGES FROM IULY BY SEASONS. 1946-47 * torage Seasonal price change irom Iuly by years i will 1946-47 1947-48 1948-49 1949-50 1950-51 1951-52 1952-53 1953-54 1954-55 1955-56 I- — — — — — — —- — — Cents per 100 pounds — — — — — — — — — — 23.9 — 55 2 —30 — 2 0 — 1 15 — 1 9 -23 j 27.5 — 72 45’ — 8 — 2 5 16 42’ 4 11 — 9 ' 131.0 — 14 54’ — 2 8 5 26 33’ — 2 29 —28 ; 34.6 — 51 69’ ‘ 11 2 13 50 29 — 3 32 — 3 1 38.1 —l11 101’ 18 7 40’ 68 31 2 40’ 11 ‘j? 41.7 --102 112’ 20 14 69’ 71 31 18 9 21 45.3 — 99 422 6 27 68’ 71 27 16 18 29 48.7 -- 55 93 10 41 75’ 75 23 37 40 25 ' 52.3 — 42 101’ 7 34 61’ - 79 9 46 4 36 V, 55.8 — 33 ‘ 91’ 13 30 65’ 79 6 38 51 48 he had stored grain sorghum harvested in nd sold it in either July or October, with _ turns being made from July sale. In the season the seasonal price increase was .han sufficient to cover storage costs in 6 following months. l’ farmer could have made a profit from '1 July grain sorghum under the conditions ed in 5 of the 10 years, Table 8. The al increase in price after July harvest ' grain stored on the farmer's own account and not under CCC loan. gures are seasonal price increases that more than cover storage costs. Was more than sufficient to cover costs of storing in the 1947-48, 1950-51, 1951-52, 1952-53 and 1954-55 seasons. The seasonal increase in price from July was not sufficient to cover storage costs in 3 of the first 5 and 2 of the last 5 of the 10 seasons covered in the study. The data show no particular consistency of the months in which profits were possible. Most consistent profits could have been made on grain stored in July and sold the following December-— \\\\\\\\\\\\\\\‘I \\\\\\\\\\\\\\\‘I \\\\\\\\\\\\\\\\\\‘I \\\\\\\\\\\\\“.\\\\\\‘ I l \\\\\\\\\\\\\\\\\)\\\\‘_ \\\\\\\\\\\\\!i\\\<\\\\\\‘i \\\\\\\l\\\\\\\\\\\\\\\\\\lI 1 I "l | l | I | A s 0 N D J F M Storage costs excluding interest + Interest costs Difference between July and subsequent prices, 1946-47 through 1955-56 average. A M i’ Figure 6. Seasonal price margins from Iuly to subsequent months and the cost of storing grain sorghum. 11 in 4 of the 10 years. Profits could have been made in 3 of the 10 years if the month of sale had been January, March, April or May. This points up the considerable risk the farmer would have incurred in storing July grain for later sale merely as a result of uncertainty as to the month in which it usually is best to sell. Ups-and-downs in Price The farmer stands a better chance of pro- fiting from storage if he can determine whether economic conditions may cause an upward swing in prices of more than a season’s duration. The seasonal pattern of price behavior is fairly con- sistent, but seasonal margins (between harvest and later prices) tend to be greater on an up- swing. The 2 years in which profits were possible from June storage of grain sorghum were marked by a general price upswing. Al- though seasonal margins Were not sufficient to cover storage costs during the general upswing of 1950-51 and 1951-52, they were sufficient to recuperate a considerable part of the storage costs on grain harvested and stored in June. Profit potentials on grain stored in July show a similar relationship to the general up- swing in prices. A comparison of Table 8 with Figure 4 shows that the years in which profit potentials were greatest, both in size and in the number of months during which seasonal price margins more than covered costs, were years when prices showed a general upward movement -—1947-48, 1950-51 and 1951-52, for example. OTHER CONSIDERATIONS Numerous conditions affect the extent of the farmer’s profits or losses from storing in any 1 year. Any condition that causes the cost of storage to be lower, or that causes the price in- crease after harvest to be greater, would increase profits from storing grain sorghum. Conditions that increase the cost of storage, or cause price increases after harvest to be less, would decrease the profits from storing. Price Supports The discussion in the preceding section about profit potentials from storing assumed the farm- er stored his grain on his own account and not under CCC loan in the price-support program. However, the price-support program in effect over the 10-year period in which seasonal price behavior was studied probably affected the size of the margin between harvest prices and prices later in the season, and resulted in smaller returns to storage operations than if prices had been set ina free market. The reasons for this are (1) more grain was induced into storage at harvest under CCC loan, tending to distribute more evenly the supply held for sale throughout the marketing season, and (2) the effecti 4 support level probably is used as a =_ buyers’ price-bidding operations. This a minimum price below which buyers unable to purchase grain sorghum at ha '- a maximum price above which they feel i necessary to go later because of, the ba : value of the support price alternative. The storage profit potentials open to a] who does not make use of the price-suppo gram probably would be materially imp most farmers were operating outside ti gram, or if the program were not in eff The present price-support program gii farmer the following alternatives: (1) his grain sorghum on the market at -_ (2) to store his grain (not under CCC l commercial elevators for later sale; (3) t" his grain under CCC loan, and either fo grain to the government or redeem the; before the date of forfeit and sell it p, market. < The farmer who is concerned primaril obtaining the greatest income would so consider the first, but never the secondg native listed. Number 1 would be considé’ an alternative to storing the grain only‘ the CCC effective loan price is below the ~ market price. And should the decision} store, he certainly would choose to stored CCC loan rather than outside the loan. For prices decrease after harvest and go belo” loan level he could recoup some of the 10s," storage by forfeiting to the CCC. t If the effective loan support price is the harvest market price the farmer canno and may possibly gain, by putting his i, sorghum under CCC loan. For he may s deem the grain before the forfeit date market price moves up enough above the ef _ loan level to more than cover the costs deeming it. Farmer’s Need for Ready Cash t A farmer with pressing debts, or with for cash in other operations at harvest time‘ obtain better returns by selling his grai mediately, either in the good will of his cr: or in financial returns from his other oper, than he could obtain from storing his T‘ sorghum for future sale in those years f; profits are possible. The need for ready =< harvest should be balanced against the r he can expect from storing to determine 1 may be the most profitable in the long run. government’s CCC loan program, in its p form, relieves the farmer from this fin' pressure. ‘