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Nail biting time

Agriculture.com Staff 06/02/2006 @ 10:15am

I get really nervous at this time of year. So much is unknown about the crop that was just planted.

At least this year, planting was completed before June 1 and the crops are in pretty good condition. Within the last week, rain totals of four inches or more here in Cass County have the hay fields lush and green. Our weather concerns are delayed for a while.

Unless it is terribly dry, however, weather now doesn't have much of an impact on crop yields. The critical time for corn is at pollination, almost a month away. The June and July weather has almost no impact on soybean yields. In 2002 dryness early in the summer followed by eight inches of rain the second week of August produced the second highest soybean yields in history.

I have been farming long enough to know that conditions can change quickly. With the volatility in the grain markets so far, any prospect of reduced yields will almost certainly cause excitement in futures markets. I was farming in 1974, shortly after the big run up in prices in 1972 and 1973. Two dollar corn looked like a good sale. I forward contracted about half of my anticipated production early in the summer for $2.20.

It was a wet spring. Planting was slow. I finally finished planting beans on June 14. Unfortunately the rain quit a few days before. There was no more until August 1. If memory serves me correctly, we had 21 days of temperatures over 100, with the high being 114. Crops that were planted in wet conditions suffered first. However, by the time it was over, all of the corn took a terrible beating. Final yields were almost nothing.

Fortunately, rains began in August and the soybeans did pretty well. At least we had something to sell. This was before the days of crop insurance products with a price component. In fact, most of us had no insurance at all because the policies at that time were quite inflexible and it had been several years since there had been a crop failure.

The shortage of grain brought about good prices for several years. Three more years of drought made the good prices a mixed blessing for dryland farmers in Eastern Nebraska. Even those who had not sold ahead as I had did not benefit because they did not have much to sell. I was on the co-op board at the time. We had numerous lawsuits against farmers who did not want to settle the damages from forward contracted grain that they did not produce. It was a terrible experience.

The experience of the 1970's made me very conservative in my approach to grain marketing. It is easy to make the case for forward selling based on long term price charts. It is much more difficult to pull the trigger on sales of a crop that you do not yet have after having to settle a contract in cash, buying it out at a big loss.

It is nail biting time again. People say that our production technology reduces the risk of having a crop failure. I agree. But it does not eliminate it. Six rainless weeks with 21 days of temperatures over 100 degrees would still produce disastrous results. Call options are available to protect forward sales. Their premium now is so great that anyone covering 100% of sales would leave most of their profit for the year on the table.

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