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Create a marketing plan for 2012

Al Kluis 03/05/2012 @ 11:31am

U.S. corn yields have dropped below the long-term trend line the last two years. Odds of another poor crop in 2012 are very small. A large increase in acres and a good crop could take prices substantially lower by harvest.

As I look at the different supply-demand scenarios for 2012, I see a huge difference in the ending stocks number. This creates a large difference in the prices that I project for corn and soybeans next fall. With this uncertainty and the real possibility of $7 or $4 cash corn at harvesttime in 2012, it's important to have a well thought-out plan for 2012.

So how do you create a flexible marketing plan that allows you to participate in a rally to $7, yet protects you if cash corn drops back to $4 by next fall?

First, write down the three main marketing factors that you're confident of in 2012. Here are the factors in which I am confident.

● Corn acres will increase to 93 to 95 million acres in 2012.

● Odds are 70% that we will have a trend line or better corn yield in 2012.

● Corn prices will have limited upside unless wheat prices turn sharply higher.

Next, list three of the “unknown” factors that you will need to monitor in 2012. Here are three factors that I believe will impact prices this year.

“The bottom line is that 2012 is a year with a lot of uncertainty and a lot of downside risk, especially for corn.”

● The euro debt problem is not going away. Until it does, we have a financial world with a lot of uncertainty and increased downside risk in all commodity markets.

● Ethanol processors are doing OK through the first quarter of 2012, but profitability is uncertain later this year.

● The U.S. dollar index has been in a “trading channel” between 74 and 82 for the last year. A close now in the dollar index above 82 would project prices back to 88 to 92. A strong U.S. dollar would be negative for U.S. and global commodity prices.

The bottom line is that 2012 is a year with a lot of uncertainty and a lot of downside risk, especially for corn.

3-Step plan

Now, put your plan together. Here are the three steps in my 2012 risk-management plan.

1. Buy the right RP crop insurance policy for your farm. I am not an insurance agent, so I encourage you to work with a professional who understands your farm and all of the alternatives you should consider. By the time you read this, you will know the February average for December 2012 corn and November 2012 soybean futures. Your rates are likely to be lower in 2012, so evaluate carefully what combination of crop insurance and hedges work best for you.

2. Get 60% to 100% of the insured bushels (A bushels) hedged using hedges or hedge-to-arrive contracts.

The U.S. soybean trend line has gone pretty flat the last several years. In 2012, odds are good that we will get a 44- to 46-bushel-per-acre average yield. That kind of yield on 1 to 2 million soybean acres could send prices lower by harvest.

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