Holding Grain: The Hidden Costs that Could Leave Growers in the Red

Storing grain after harvest can provide marketing flexibility for growers, allowing them to delay sales and wait for better prices. However, holding grain is not free and comes with storage costs, including infrastructure expenses, maintenance needs, and insurance.

The cost of capital is another consideration, as grain held in storage cannot be converted into cash immediately. If a grower could have sold wheat for A$320/t at harvest, that amount remains tied up while the grain is stored. Assuming an average monthly carrying cost of A$2/t (hypothetical), after four months the total cost would be A$8/t.

This means the wheat must be worth more than A$328/t to leave the grower in the same position as selling at harvest. However, if the price rises to A$340/t, holding the grain adds value, with an effective improvement of A$12/t after subtracting carrying costs. But if the price only increases to A$325/t, the grower may be worse off due to storage costs.

Quality risk is also a concern, as grain can deteriorate in storage through insects, moisture, temperature problems, or poor management. The decision to store grain should not be based solely on potential price gains but rather whether the expected improvement covers storage costs and risks.