ISU economists Dermot Hayes and Bruce Babcock ran several different price and situation scenarios through their computer models. They used a producer in Union County with 10,000 bushels of corn as an example. They also assumed a local price of 30 cents below the nearby futures price. The researchers said at these prices, storage is encouraged. There is a 26-cent return from storing grain from harvest to July.
Producers have several choices.
For instance, they can sell at harvest and take the LDP or use the loan program. Producers who sell at harvest can get the county price plus the LDP, which will equal the loan rate. Or they can guarantee themselves the same amount by putting the grain under loan. The difference is that by selling at harvest, they lose any opportunity to benefit if the corn market improves. Being in a position to benefit from upside price movements without having to worry about downside movements is better than not being in the market.