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February is weather market month
February used to be a good month to take a week or two off, if you were in the grain business. For most of the last three decades, prices would usually grind lower in low-volume range-bound trade. Since 2005, however, this has completely changed.
Now February is a very important month if you are selling grain or if you need to be buying grain.
Brazil is projected to produce more soybeans than the U.S. this year, and the total South American crop is now about 80% larger than the amount that grew in the U.S. in 2012. For farmers in South America, February is like the month of August for North American farmers. This is when the soybean crop can be made or lost.
As I drive to work in snowy Minnesota during the month of February, I am often speaking with customers in Brazil. In a global market, February is one of the big weather months of the year. That's because South America is projected to grow a total crop of 5.4 billion bushels of soybeans and about 3.8 billion bushels of corn in 2013.
The month of February is now what I call a major “change of trend” month. If crop-production problems develop in South American corn and soybeans, prices will usually rally. This sets up February as a great month to be making some cash soybean and corn sales in the years when prices rally.
However, if the South American weather is ideal and projections are for a large crop, then prices usually move lower into late February. This sets up late February as a good time for livestock feeders to be buying corn and soybean meal.
In the Corn Belt, the month of February is when U.S. farmers are carefully watching the price of December 2013 corn futures and the price of November 2013 soybean futures.
The average price for February will set the initial price guarantee on your crop revenue insurance policies. This price level — high or low — is an important component of what you need to factor into your 2013 market plan.
The type of policy you buy and the level of crop insurance policy are two of the most important decisions you make when you put together your risk-management plan for your 2013 crops.
During February, you need to begin to work on your 2013 marketing plan. You should know or have a very close estimate of your costs. You still have these two variables:
1. The 2013 yield you will harvest. For the yield part of the equation, stay conservative and go with the five-year average that you've produced. Some farmers will build their budget using only the insured bushels they can guarantee. That is also a good option. You need to plug in a realistic number and be willing to change the estimate as conditions change like they did in 2012.
2. The price of the 2013 crop.
Trying to project the price at which you can sell is the most challenging part of the equation. You cannot predict the weather in the U.S. next spring and summer. You cannot predict how high or low prices will go. Acknowledge that and, instead of chasing someone who claims they can predict these unknowns, put your effort into building a plan.
This plan should allow you to benefit from higher prices but still provide you with protection if prices go lower. You need to realize that by taking this approach, you won't hit the high, but it will allow you to sleep nights. You'll likely come out with a good average selling price. This approach will keep you in the business of farming.
Take five steps
Here are five steps you can take to fine-tune your risk-management plan this year.
1. Work with a qualified crop insurance professional. Choose the right insurance policies for your farm by working with a qualified person. (Please note: I am not a crop insurance agent, so I cannot make recommendations.)
2. Sell in increments. This worked very well for the 2012 crop when new crop corn was sold ahead at $5.90, $6.90, and $7.90. Every time you make a sale, ask how you will feel if prices go up or down $1 per bushel after you make the sale.
3. Be more aggressive selling when prices are right. Sell more when you are able to sell above your crop insurance guarantee, and slow down when you are not. This is simple advice, but it has created good results. By taking this approach, you end up selling more when prices are moving up and selling less when prices crash.
4. Spread out your sales over the entire year. The farmers who did the worst job of marketing the last two years sold too much ahead too early, or they just did not sell at all.
5. Use all of the marketing tools that are available. If you used a combination of hedges, puts, and minimum price contracts, you came out with a good average. If you just wanted to make cash sales, you may be still holding all of last year's crop.
The bottom line
Think revenue and profit margin per acre — not price per bushel. More and more young farmers are using spreadsheets or a grain software management program like Grain Bridge. They work hard to maximize yield, they know their costs, and they are willing to sell ahead when prices offer a good return.
One young Missouri farmer told me that once he started using this concept, he approached the markets with confidence instead of fear, and he slept a whole lot better at night.
If this approach is new to you, try it on a part of your production in 2013.