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Put on your business hat

Agriculture.com Staff 12/01/2006 @ 2:37pm

This fall's rally, especially for December 2007 corn, requires grain farmers to switch from thinking market outlook to thinking business decisions, at least as far as dollars generated per acre.

December 2007 futures are currently trading near $3.65. Depending on your basis and yield, you are in a position to sell corn that will gross in the neighborhood of $500 per acre.

Harvest for 2007 is eleven months away. Look back at the past year and note all the changes in the marketplace. Critical weather during mid summer, with much of the Midwest under extreme heat and drought stress, failed to rally prices. Yet, as harvest got underway and early yields confirmed potential for a large crop, prices rallied significantly. It is difficult to outguess the market. To look ahead for 2007 and say, "since prices have rallied now, they must rally further later," is a potential disaster. The market usually does not move as most expect. Bottom line, outlook can be dangerous.

Our point: When the market is trending higher, the best strategy may be no strategy. However, at some point, this strategy fails. As a farm manager who is required to make business decisions, you need to be thinking now about what the market is offering and how this can affect your operation, family and livelihood. Make an extra effort this year to thoroughly investigate and understand all marketing tools at your disposal.

A strategic, business-minded professional approach will go a long way in today's volatile markets. You can strategically position yourself against lower prices, yet participate if prices continue upward. A rather simplistic approach, but one that can work well, is to sell half the crop through forward contract or futures. Then, cover these positions by buying out-of-the-money calls. Lastly, buy puts to cover the remaining unsold bushels. You have a price floor on all of your projected crop, yet have unlimited upward price potential.

If you have questions, comments or would like a strategy developed for your operation, please contact Top Farmer at 1-800-TOP-FARM, ext. 129.

This fall's rally, especially for December 2007 corn, requires grain farmers to switch from thinking market outlook to thinking business decisions, at least as far as dollars generated per acre.

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