Post-Harvest Grain Storing and Hedging with Efficient Futures

This study is a simulation that tests whether Kansas wheat, corn, milo (grain sorghum) and soybean producers could have used deferred futures plus historical basis cash price expectations to profitably guide post-harvest unhedged and hedged grain storage decisions from 1985 through 1997. The signaled storage decision is compared to a representative Kansas producer whose crop sales mimic average Kansas marketings each year. Twenty-three grain price locations are examined. The simulation resulted in an 11-cent per bushel annual increase in grain storage profits for wheat producers, 27 cents for soybeans, -17 cents for corn, and -20 cents for milo; but storage profit differences varied substantially across locations. Inferences for random Kansas cash price locations were generally robust to alternative assumptions about interest rates or storage costs, but sensitive to assumptions of model starting dates and basis specification. Hedging tended to decrease risk but not impact profitability. Few results were consistent across the numerous scenarios involving different crops, locations, and specifications for futures-plus-basis post-harvest grain storage signaling models; thus, this research does not reject cash market efficiency.