Managing market scenarios
For many farmers like Roy Wendte, 2011 has been the best of times and the worst of times. Commodity prices generally have maintained lofty peaks, but volatility was part and parcel of these higher prices.
Weather also wreaked havoc for many who were forced to forecast crop yields against a stark backdrop of a late, wet spring, severe floods, drought, wind and hail, and early frost.
Large swings in input costs added high drama. Higher fertilizer costs sustained a trend of higher corn-production costs, leading to higher break-even prices to cover costs. Altogether, USDA estimates producers have drilled 15% more into input costs for the 2011 crop.
And just like the best – and worst – of times in a Dickens novel, world factors played a significant role, precipitating market rallies that diverged markedly from traditional seasonal patterns.
Producers schooled in the need to make a long-term plan – and stick to it – learned in 2010 that lack of flexibility was costly. Today, they're scrambling to develop a real-life set of market scenarios.
Wendte believes that his strategy of purchasing inputs 12 to 28 months ahead is paying off.
Advance booking and on-farm storage of major inputs play a large role in his marketing. In 2007, the Altamont, Illinois, producer built a dry fertilizer shed.
“Part of my marketing strategy is to be self-sufficient,” he says. “I have two years' worth of DAP in storage and 1½ years supply of potash. In 2009, I bought DAP for $290 per ton; this summer, I bought enough of it to fill my shed.”
According to the University of Illinois' farmdoc, fertilizer contract prices for fall delivery were $814 per ton for anhydrous ammonia, $688 per ton for DAP, and $627 for potash. That's $162 per acre higher than 2010 and 2011.
If 2012 actual costs equal projected costs, it would be the second highest on record for central Illinois farms with high-productivity land.
And it's one reason Wendte added a 226×130-foot steel shed with 20-foot sidewalls this past summer. “Now I can store my chemicals in a heated, warm shop and hold onto them longer,” he says.
The shed also features a 15×46×4-foot-deep pit for liquid fertilizer. “I have a loading bay and can load the product on concrete,” he says. The shed also houses his seed dealership, a 120×130-foot shop and a 40×65-foot office space.
Wendte still is looking at diesel. “I'll contract when it's advantageous,” he says. “With crude oil at $82, it might be a good time to buy half or more of my diesel. The only thing I can't lock in is anhydrous. If my major inputs are covered somewhat, I can take a little more risk in marketing,” he says.
Earlier this year, with the Dow dropping sharply and gold going up,Wendte worried that 2011 was starting to shape up like 2008. “Now I think there's a better demand base than in 2008, and it won't be a repeat,” he says.