Farmers sometimes store their grain and wait to sell at a later date if they think market prices will increase. If they are accurate in their forecasts, this can be a profitable strategy. Let look at an example and determine the best course of action for Farmer Jones. Farmer Jones just harvested 80,000 bushels of wheat that he currently has in grain bins on his farm. He considered selling this years harvest but the current market price is only $6.50 a bushel. He strongly believes that in one year from now, wheat prices will be at least $8.00 a bushel.
Your original discussion post should include:
- Assuming a 5% interest cost, what should Farmer Jones do with this year harvest?
- What happens if Farmer Jones has 10% of his wheat spoil while in storage?
- What other factors would be important to consider when making this important decision?