Ten years ago, a 10¢ move in corn prices was a wild trading day. In 2011, a spike 40¢ up, then 40¢ down is nearly the norm. And such volatility adds volumes to discussions within two informal Nebraska grower groups about 40 miles apart.
These guys likely mirror you or growers you know, pondering when and how to pull the trigger on corn and beans after often being blind-sided by price peaks and valleys.
One grower panel, including ag lenders and grain handlers, regularly confers near Hastings, NE, over what’s driving corn and soybean prices and how they’ll get their crops sold. They range from a retired grower who markets his landlords’ crop share, to a 40-year-old who sees more put and call options in his marketing,
Another group gathers occasionally at its local AGP grain elevator near the Kansas border at Fairfield. Growers in both areas have seen near perfect growing conditions after ideal weather. “We’re in a boom year here,” says Mark Keiser, ag lender and president of Adams County Bank in Kenesaw and Juniata, NE. “But our growers know they have to do a good job of marketing.”
Jay Reiners, the 40-year-old from Juniata, has farmed long enough to worry about the impact of price volatility. “You have to look at different marketing methods,” Reiners says, commenting on securing $7-corn and $13-soybean prices without facing futures margin calls. “I’m now looking at using more options than in the past.”
That’s a trend his CPI elevator grain-marketing specialist Paul Phelps says is gaining popularity. “There are now more put and call spreads than we’ve seen,” Phelps says, while sitting across the table from Reiners and several other growers.
Fairfield and Clay Center, NE, area growers Steve Kluver and his nephew Casey look at using futures and options to manage their risk. “I’m not comfortable setting up a large margin account,” Steve says. “But you still have to take some kind of action to protect your price. And you don’t want to set any price unless you know your breakeven.”
Casey adds that he has learned to not always look at historical price trends because of volatility. “Last year (2010) it would have been better to have waited until harvest to sell your crops (when prices climbed toward $5-plus in the fall),” he says. “This year I contracted corn at $5.25 in March, with protecting a reasonable profit in mind. Sure, we’ve seen prices go up. But if that’s the worst sale I make, I’m fine with it.”
John Kluver, Steve’s brother, was making more corn sales about Sept. 1, when December corn futures were in the $7 range. “If you can get $7-7.50 cash corn, how much more do you need?” he asks. “That’s one reason why we have put up a lot of extra bins for storage.”
The Kluvers are among growers who market corn through their local elevator. “I also doing some marketing through the Cargill ProPricing programs that enable me to spread my price risk,” John says.
He also books many of his inputs through AGP. Worried that anhydrous ammonia prices will climb even higher for 2012, he contracted it for about $700/ton. “With prices that high, you also have to make sure you have some product sold,” he says. “I made some sales in the $7 range to manage inputs better.”
Phelps says more growers see the benefits of balancing input buys with crops sales. “They see the relationship between having both ends locked in to an extent,” he says, noting that farmers can be vulnerable if inputs get away from them while crop prices fall or remain stagnant.
“Grain prices and input prices move together,” Phelps says. “Growers are looking more at net profit than they are a flat price for corn, beans or other crops.”
Keiser adds: “Farmers have to sell enough bushels to cover those high rents. We’re seeing high cash rents in the $350/acre range.”
Taking a less aggressive, yet astute marketing approach is Ivan Uden, who farms east of Kenesaw. He’s seen price trends through some four decades of corn and bean production. “I sell some corn and/or soybeans every Thursday at the close of the market,” he says. “That way I’ll receive the average price without following the market too close.”
In this program, CPI’s Phelps says growers can use 20 straight marketing weeks in the spring or 10 weeks in the fall to make sales. “This type of program is for growers who want something simple that they can understand,” he notes. “It’s a popular plan for many farmers.”
Then there’s Howard Junker. He’s “mostly retired” but still farms a few acres. He has several landlords on a crop-share basis. “I work with them to get their crops marketed,” he says. “It’s mostly a cash-sales situation, but I still watch the markets very closely.”
Volatile shifts in corn and soybean basis levels raise the eyebrows of nearly all the growers. Dale Pospisil, a Juniata grower, had about half his corn sold by Sept. 1. He saw several basis levels, depending on local needs of feedyards, ethanol plants and other corn users. “Before, we always had about a 40¢-under (futures) basis at harvesttime,” Pospisil says. “Now you don’t know what it will be.”
One complaint of the growers is that when there is a rally in the futures market, basis levels and, thus local cash prices drop even more to virtually offset the rally. “There’s no normal basis anymore,” Phelps says. “Futures prices may out-run the cash. With $8 corn like we’ve seen, it’s hard to say what’s normal.”
Phelps encourages growers to monitor U.S. and world currency prices, since they often heavily impact U.S. grain exports. “If you’re going to be a grain trader you’re going to have to be a currency trader,” he says. “That’s where farmers are going to get way behind.
“It will depend on the dollar value to other countries. When the U.S. economy finally improves and the dollar goes up in value, the ag economy is going to suffer,” Phelps says.
All the growers on the informal panels agree that with the huge financial requirements for both operating and marketing purposes, a good relationship with their ag lender is essential. A solid operating plan that can be laid out for the lender is vital.
“We’re seeing more stringent regulations in larger cities and ag lenders are worried about them,” Keiser says. “We know they’re coming.”
He adds that with high grain prices, markets for corn resemble those for cattle. “Before, grain prices were greatly supported by government payments,” Keiser says. “Now, with high corn prices, grain is mirroring cattle feeding. It could lead to booms and busts.”
Reiners says he’s growing more dependent on his smartphone to monitor corn and beans. “I receive emails or texts regarding changes in the market or input costs,” he says. “I can send a return text to change my positions if needed.”
Some panel members joke that they’re waiting on a new marketing-company-sponsored iPad holder to be mounted next to the GPS screen in the tractor cab.
Phelps says it all boils down to cash flow for growers and what they want to do and can realistically do. “Theoretically, they ought to do a lot of things,” he explains, “but the practicality is it can’t happen.”