Right after harvest prices are low but I need cash, so I sell at a loss. I heard I can take a loan against stored grain. How does this work?
A warehouse receipt loan, also called pledge financing, lets you store your grain in an accredited warehouse, get a negotiable warehouse receipt for it, and borrow money against that stock instead of selling cheap at harvest. Banks typically lend a percentage of the grain value at an interest rate similar to a crop loan, and you repay and reclaim the grain when prices improve and you sell. This breaks the distress sale cycle where everyone sells at once and prices crash. Prefer a WDRA registered warehouse with electronic negotiable receipts. The loan percentage, interest and storage charges vary by bank and warehouse, so compare the holding cost against the price rise you expect, and confirm current terms with your bank and warehouse.
I took a warehouse receipt loan last year and the key thing is the holding cost, storage charge plus interest, must be less than the price rise you expect. In a flat market it can eat your gain, so do not assume prices always climb. I store only part of my crop this way.
Our FPO arranged pledge loans for members against warehouse receipts. We held tur for two months and sold at a much better rate. The interest was far less than the price we would have lost selling at harvest.
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