Some people may think so — but I disagree. Contrary to popular opinion, the new Farm Bill is going to make marketing more complex than ever, since it requires more decisions. It will also continue to widen the income spread between those doing well at marketing and those not doing so well.
Why? This Farm Bill is not like those in the past that included target prices. Unfortunately, many people are looking to the “target price” of $2.60 in corn and $5.80 for soybeans and assuming that's what they're going to get for their crop.
Wrong! Simply put, the target price in this Farm Bill is merely used for calculating other payments, specifically the counter-cyclical payment. Here are some issues everyone needs to recognize that will be important in the coming months:
The grain still has to be sold. To assume that you are protected on the downside and the upside in prices doesn't matter is like fantasyland. It is still important for you to maximize your LDP payments (picking market bottoms).
You now also have to worry about counter-cyclical payments, particularly if you don't have storage. This is a grain-bin positive Farm Bill.
Should you update your base acreage? This is not an automatic answer, such as whether or not you should update to the current version of Microsoft Windows. For some of you, it will pay to update — but for many of you it won't. There's not enough space to go into that in this article, but do the math for your farm. You might be surprised.
Winners Versus Losers
Agriculture as a whole will be a winner under this Farm Bill. The amount of money being pumped into the farm economy will be very large if prices stay low. And if prices don't stay low, farmers will be able to get the money from the market rather than the government. The losers will only be those who fall under the false belief that the government program will take care of them.
The other potential losers in this program may be farmers who have no grain storage and have to market everything at harvest.
Why? The absolute worst scenario is for a producer who has to sell at harvesttime at low prices that turn out to be the lowest prices of the year. What if, for example, a producer sells corn at $1.70 off the combine and then prices rally sharply for the next few months. He will collect a handsome LDP, but he will have established a low price on the grain and may miss out on the counter-cyclical payments if prices rise.
The Best Scenario
The most profitable scenario we can imagine is for prices to be high before harvest even begins, sell the grain on a forward cash contract and from the time the grain is sold on a contract to the time it is delivered, prices drop sharply. That way you would benefit from high grain prices, high LDPs and high counter-cyclical payments. If only the world worked perfectly.
Net farmer selling prices for grain will vary wildly the next few years. Through a combination of trying to maximize grain prices, LDPs and counter-cyclical payments, strategies will be all over the board, as will the end results. Never has marketing been more confusing.
If you would like a free sample worksheet to help you decide whether or not to update your base acres, call 800-558-3431 or e-mail us at brep[email protected].
Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit www.brockreport.com.