With volatile corn and soybean markets that can easily trade within a 50¢-$1 range in a single day, growers like Josh Lancaster and Richard Borgsmiller are interested more in a steady profit than hitting the high.
The answer to the question of whether to sell or wait varies for both, as well as with university economists. But all agree that being less greedy helps produce still-good prices for growers with a reasonable marketing plan.
Lancaster, who manages a large operation in Slaughters, KY, and Borgsmiller, a grower from Murphysboro, IL, are bullish on better prices to come, although USDA's mid-summer crop forecast for higher corn and bean acres had them more concerned about markets.
“My goal is to market for a profit,” says Lancaster, who in his early 30s manages Hust Farms. “If I can sell O-N-D at a profit I do it. I know I'll make money.”
BORGSMILLER, A 66-YEAR-OLD veteran grower and marketer who's been a leader in state and national commodity organizations, will likely pull the trigger at $5 corn prices. “The late planting we saw this year and the potential for more demand for corn make this volatile market look better down the road,” he says.
He notes that even though higher acres are forecast, increased acres were planted late. “There was so much late corn in Illinois, Iowa and Indiana, it won't mature until later in the summer,” he says.
Ed Usset, University of Minnesota grain marketing specialist, says “every producer should be getting a lot of his 2009 crops sold.
“If you have your crop insurance covered, ask yourself, ‘What am I waiting for?’ Prices could go higher. But there are some pretty good opportunities now,” he says.
Adds Darrel Good, University of Illinois (U of I) grain marketing economist, “Based on crop conditions and production costs, producers should consider selling in small increments” to capture good prices, even as markets reach for higher levels.
Iowa State University Grain Marketing Economist Chad Hart says he remains “slightly bullish on both” corn and beans and hopes growers got some of their crops marketed in the spring. “April, May and June are typically when we see the highest prices of the year,” he says.
Before the mid-summer crop report, Hart felt bad weather, late plantings and tighter supplies could present strong marketing opportunities postharvest. After the report, his Iowa farm report summary pointed out that eastern Corn Belt growers were looking for a repeat of last year when the second half of the growing season was nearly ideal.
“However, given the delays in crop development, any weather stress will translate into crop stress quickly and a rebound in crop prices,” he says.
Lancaster, who depends on forward contracts with local elevators and terminals along the Ohio and Mississippi rivers to market most beans, got about 15% of the 2009 crop sold at $10.20 and $10.50 in early May.
“I'll likely make more sales when we reach $11,” says Lancaster. “There is good profit potential in the $10-11 markets. We can actually make money on $8 and $9 beans.”
Even after the negative crop report, beans were still above $9 in his local market. So he wasn't too bearish, especially since input costs seemed to follow crop prices down in mid-summer.
Borgsmiller also markets beans through his local elevator and through river markets. This summer he was eyeing the September contract at $10.80 and saw plenty of room to make sales after harvest.
AFTER THE CROP report projected more bean acres, he was considering earlier sales. “If anything, I am more likely to sell soybeans more than corn,” he says. “I'll start selling with any rallies.”
He hadn't made any sales through mid-June and was content to stay out of the bean market until a rally. “I don't really sell out of the fall,” he says. “I like January and February sales. If we can look for a January delivery at $11, that might not be a bad price to start marketing.”
His corn and soybean rotation is normally 50-50. “But it's about 25% corn and 75% beans this year because of the wet weather at planting time,” he says. “A lot of beans that went into the ground late in this area (of southern Illinois) were hurt due to rain.”
Adds Good, “Late soybean planting opened the door for disappointing yields. However, USDA may be too optimistic on export demand for the year ahead as Chinese buying softens (after building stocks this year) and South American production rebounds.
“Soybean prices have been stronger than corn prices recently, suggesting producers may want to be more aggressive on preharvest sales,” he says. “I'm not a fan of being real aggressive with so much time left.”
Good notes in his mid-July U of I farmdoc column that, following the mid-summer crop report, December 2009 corn futures were “well below the price guarantee for crop revenue products, which discourages additional new-crop sales. November 2009 soybean futures were about 30¢ above the crop revenue insurance price guarantee.”
Hart says, “There was concern about the emergence of corn and soybeans. In 2008 there was a similar situation. It took ideal weather from the 4th of July on. Can we have that two years in a row?”
Again, Borgsmiller still isn't sold on a bearish corn price. “Some said the corn rally was over in June,” he says. “But (with the late-planted corn) there's a likelihood high bushels won't be there.
“Also, the dynamics with the ethanol ruling can impact prices, if and when we raise ethanol mandates from 10% to 15%,” he says. “If that would happen, there would all of the sudden be a bigger demand for corn.”
HE SEES A LOT of volatility remaining in corn markets. “In short, I'm not excited about making many corn sales this summer,” says Borgsmiller. “When I can get $5/bu., I'll pull the trigger. But if my yields look like they're going to be decreased, I may look for more than $5.”
For Lancaster, $4.50 corn will look pretty good. “That's a profitable price,” he says, noting that most of the farm's corn is marketed to regional poultry operations and elevators.
Lancaster had planned to make steady sales at $4.50, then make additional sales in 10¢ increments. But his attitude changed when corn prices backed toward $3. “We're selling a little more of the crop,” he says, again noting that a drop in inputs helped take the sting out of lower grain prices.Continue on Page 2
He likes the strong river basis. “We can usually obtain a basis of 10¢ over futures (since it is near river markets). I'm not happy if it isn't at that level,” he says.
Good takes a no-hurry approach to marketing 2009 corn. “There is still a long time to market the 2009 crop — about a year,” he says. “Declining stocks next year opens the door for higher prices, but we may need help from the general economy and energy prices.”
In mid-June, Good indicated that $4.70 December 2009 futures “is a bit of a lid for now, but looking to the $5 area where prices broke last fall is a possible target. “Based on crop conditions and production costs, producers should consider selling in small increments,” he says.
WHAT ABOUT 2010?
Ed Usset, University of Minnesota grain marketing specialist, says growers who have their land bought or rental agreements in hand and have a good sense of fertilizer costs should start looking at some 2010 marketing opportunities.
“There is a heck of a marketing opportunity out there; there's no way around it,” he says. “It's not like what we saw last year (2008), but it's enough to convince me to get started.”
Every summer, Usset regularly sets a marketing plan for the following year's crops. It mirrors his attitude toward taking advantage of good prices when you can through scale-up sales when possible.
His 2010 marketing plan was originally set in June. He carries a philosophy of buying crop insurance, then using scale-up sales to lock in potential profits. “It's based on margin management,” he says. “I posted the 2010 plans (corn and soybeans) because I'm looking at costs of production.
“I get a sense for the cost of production for average farms. I looked at pricing opportunities for 2010 relative to projected costs,” he says. “The fact is, a lot of producers can lock down fertilizer costs for 2010 that are close to where they were two years ago.”
Usset starts by buying crop insurance to protect his production risk. Then he works to have 75% of his anticipated crop (based on APH) priced by early June.
Here's his original 2010 preharvest plan for corn, based on a projected production of 90,000 bu. from 600 acres yielding 150 bu./acre:
The plan starts on Jan. 1 with the pricing 10,000 bu. at $3.65 cash price ($4.05 December futures) using forward contract/futures hedge/futures fixed contract.
- Price 10,000 bu. at $3.90 cash/$4.30 futures by March 29, pricing tool to be determined (tbd).
- Price 10,000 bu. at $4.15 cash/$4.55 futures by April 14, pricing tool tbd.
- Price 5,000 bu. at $4.40 cash/$4.80 futures by April 28, pricing tool tbd.
- Price 10,000 bu. at $4.65 cash/$5.15 futures by May 13, pricing tool tbd.
- Price 10,000 bu. at $4.90cash/$5.30 futures by May 27, pricing tool tbd.
- Price the last 10,000 bu. at $5.15 cash/$5.55 futures by June 10, pricing tool tbd.
- Exit all options positions by mid-September 2010.
For more on Usset's marketing plans, go to http://www.cffm.umn.edu/GrainMarketing/MarketingPlans.aspx.