Mustard: sell now, sell to the FPO, or store
Harjeet has 2 ha of mustard in Rewari and expects 22 q/ha, all harvested and threshed, with 8% moisture and 38% oil. The local mandi's modal price today is ₹5,600/q, but his lot has not been graded and contains 4% foreign matter. A nearby FPO offers ₹5,950/q at its collection centre, payment in 7 days, provided moisture is below 9% and foreign matter below 2%. His own store can hold the crop for six months with about 2% weight loss to insects and rodents, and he expects the price to rise 12% by then. He would need to borrow at 9% per annum against the stock; cleaning costs ₹60/q and transport to either buyer about ₹1,200 for the lot. He needs ₹1.5 lakh in the next month for his daughter's admission. Mustard prices are volatile and imports affect the market.
1. Calculate net realisation for the three options - mandi now, FPO, and six months' storage - and state your assumptions.
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Output: 2 ha × 22 q/ha = 44 q.
Option 1 - mandi now. 44 q × ₹5,600 = ₹2,46,400. Assumes the modal price is paid on as-is weight with no further deductions.
Option 2 - FPO. Cleaning 4% foreign matter down to 2% leaves about 43.1 q. 43.1 × ₹5,950 = ₹2,56,445; less cleaning ₹2,640 and transport ₹1,200 = ₹2,52,605.
Option 3 - store six months. Price 5,600 × 1.12 = ₹6,272/q; weight after 2% loss = 43.12 q; gross ₹2,70,449. Less interest ₹2,46,400 × 9% × 0.5 = ₹11,088, storage and insect control ₹1,500, transport ₹1,200 = ₹2,56,661.
Assumptions: the 12% rise is an expectation, not a contract; cleaning and transport costs are as stated; no mandi commission is charged in Option 1.
2. Which option do you recommend, and which non-price factors could change the answer?
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Recommendation: the FPO. Storage shows about ₹4,000 (1.6%) more than the FPO, but that margin is entirely dependent on an expected 12% price rise over six months, while the FPO price is certain and paid in 7 days. Given the ₹1.5 lakh cash need next month and volatile prices, the risk-adjusted return favours the FPO. If prices stayed flat, storage would lose about ₹13,800 against today's mandi sale.
A defensible refinement: sell about 60% to the FPO for the admission money and store the balance only if he can borrow cheaply and has good storage.
Non-price factors that could change the answer: FPO payment reliability, mandi commission and weighing practice, distance and transport, storage pest risk (khapra beetle), loan availability at 9%, import policy and price volatility, and whether the FPO pays a quality or oil-content bonus.
3. What should he do differently next season to capture a better price?
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- Choose a variety with high oil content recommended for the region, since oil content drives miller demand.
- Harvest and dry to below 8% moisture, and clean and grade before selling; 4% foreign matter is a direct deduction.
- Aggregate with the FPO to sell in bulk and bargain from a position of strength.
- Use e-NAM or online bidding to compare mandi rates instead of accepting the first offer.
- Sell in instalments rather than at a single point, to average the price.
- Consider warehouse receipt financing so he is not forced to sell for cash.
- Keep a cost-of-cultivation record per hectare, so he knows his break-even price before he negotiates.