Jason Richters is doing all he can to prevent a late Y2K meltdown - in corn and soybean prices.
While in the middle of harvesting his 1999 crops, he was making provisions to market a portionof his 2000 crop.
Richters grows about 1,300 acres of corn and soybeans near Seward, NE. Yields average 170-185 bu/acre for irrigated corn and 40-55 bu/acre for dryland and irrigated soybeans. The normal corn basis is about 30 cents under futures, with a slight tightening at harvest. It was 40 cents under much of '99, making marketing even more difficult in an already weak year.
Richters would rather worry about crop progression and not fret over pricing during pollination or other critical growth periods.
"I have more staying power when something goes wrong in production than with prices," he says. "My personality doesn't handle not having grain marketed early."
That's why, even though '99 harvest prices were low, stronger prices for 2000 corn and beans had him in the long-term marketing mode.
"I missed some chances in late summer to sell December 2000 corn futures at about $2.60," he says.
"However, the (December 2000) $2.35-2.45 level (in mid-October) still presented a reasonable opportunity to get a portion of my 2000 corn priced."
He was geared to market 10-20% of his 2000 corn, using a futures market 14 months in the distance.
"About $2.45, give or take a nickel, could be a pretty good price," he says. "With a normal basis (30 cents under), that would put us at about $2.20. But if we have an overall good crop here and basis stays down, it would give us a $2.05-2.10 price. That will just about cover our breakeven. With market conditions like we've seen, I'll be happy to do anything to stay close to breakeven."
Richters has no set time to have the next year's corn sold. But he rarely welcomes Jan. 1 without some of it booked. In typical years, at least 40% will be covered by futures, with the remainder forward contracted to local elevators or a milling company. Over 75% of his '99 corn was covered by $2.47 futures by early spring. Net price: $2.10.
"A lot of people don't like futures, but corn futures don't worry me," he says. "However, I do rely on what my father and broker say before I hedge."
He's less comfortable with soybean futures, preferring options.
"Bean futures are too volatile for me," says Richters. "I tend to go with put options, usually after harvest, with a goal of at least protecting my breakeven (about $5.25/bu)."
November 2000 soybeans were in the $6 range in late summer, but backed off to about $5.25 during harvest. The price for $6 November put options was well over 80 cents/bu - too expensive for Richters.
Virtually all of his '99 beans were covered by $5.50 November '99 puts. By deducting a premium cost of 35 cents, the puts gave him a $5.15 floor price, plus he collected a loan deficiency payment (LDP).
Early marketing is wise on at least a portion of both beans and corn, says Bill Tierney, Kansas State University grain marketing specialist.
"I have no problem with growers marketing 10-15% of their 2000 beans or corn (based on $2.40 December 2000 corn and $5.25 November 2000 beans)," he says. "I feel both U.S. corn exports and domestic consumption will be lower than expected, so there will be continued pressure on new-crop prices."
Tierney believes that, during the 2000 harvest, December futures could read $1.95-2.
"A $2.40 hedge now could easily provide a 40-45 cents profit off futures alone next harvest. If the cash is, say, $1.75 and the LDP is 25 cents, a grower could see a net price of $2.40-2.50."
Tierney suggests further marketing when corn rallies another 20-25 cents. He's more bullish on the potential for strong bean rallies.
"We could see as much as a 75-80 cents rally in bean prices," says Tierney. "When that occurs, growers need to price additional quantities of new-crop beans."
Although Richters endorses early marketing, he usually doesn't sell everything ahead.
"I like to hold some back in order to catch a rally," he says. "That adds to a price I can already live with."