Finalize 2011 marketing plan
This has been a year of records in the corn and soybean markets. Corn went to a record high of $7.99¾, corn futures have traded limit up or limit down a record 35 times this year, and the current USDA projection is for record farm income in 2011.
July 2012 CBOT Corn
For many farmers with trend line or better yields this year, it will be another profitable year. On the other hand, if you are in a drought area, or farming in Ohio where you lived through one of the wettest springs on record, this is proving to be a challenging year. Several farm lenders I know report a huge variation in farm profits this year – even in the states that had good yields.
4 Winning approaches
The farmers who had good profits had these four approaches in the way they marketed.
1. They wrote up a marketing plan. Profitable producers knew their cost of production. And when prices rallied up to a good profit, they began to make sales.
One long-time Iowa customer with 2,000 acres of corn and soybeans and 12 different landlords has a budget and marketing plan for every farm. This is a lot of extra work, but it allows him to see which farms are making money and how much he can afford to pay for rent.
“This has been a year of records in the corn and soybean markets. Corn went to a record high of $7.99¾, corn futures have traded limit up or down a record 35 times this year, and the current USDA projection is for record farm income in 2011.”
2. They made several sales as the markets went up and avoided panicking when prices went lower.
At my firm, I made corn sale recommendations when corn rallied to over $5, sold more when corn rallied to $6.20, and completed the 2010 cash sales when prices rallied to $7.20. I did not hit the top, but I came in with a good average.
3. They used all of the marketing alternatives. The combination of hedges, hedge-to-arrive, and put options, along with the right crop insurance, lets you manage risk and manage your margins.
If you only make cash sales after the crop is in the bin and are not willing to forward-contract or hedge part of your production on spring and summer rallies, it really limits your ability to create an effective plan.
4. They understood grain merchandising. Successful producers used their bins to capture the carry in the market, and they used basis appreciation to maximize income, while managing risk.
July 2012 CBOT Soybeans
4 Losing approaches
The farmers who lost money had these four approaches to marketing their crops.
1. They did not have a plan. They watched the market and hoped it would keep moving higher.
2. They got whipsawed. They tended to let the news of the day get them bullish, and it got them really bullish as prices rallied higher. They also panicked and sold when the news was really bearish. It was an emotional roller coaster, and it is likely to stay that way.