Plan for an average crop season
I remember it well. There was a terrible blizzard. It snowed enough that some of the immediate family did not make it to the funeral for my neighbor. We wondered if the weather would ever return to normal enough to produce a corn and soybean crop. The date was April 9, 1973. It was the year my father passed away. It was also one of the most profitable years of my 44-year farming career. The weather turned out to be better-than-normal and prices stayed high through harvest. I bought a complete line of six row farm equipment and paid for all but a small part of it from one year of farming profits. Of course, that year my new six-row combine with heads cost only $20,000!
The next year, 1974, is also etched in my memory, but for a different reason. It was one of the wettest spring seasons in history. I finished planting soybeans on June 12. Rain on June 8 was the last rain until August 1. Many entries in the diary for that year start with the words “Over 100 degrees again”. Yields were disastrous. Corn prices at record-highs did not help much with nothing to sell. Without the soybean crop that withstood the drought until rains came, I would have been out of business. At least the soybean crop paid the interest on the operating note.
I have learned in my farming career never to predict summer weather based on what happens in the winter or spring. It seems as if everywhere I go people want to talk the hot weather in March and how dry it is going into planting season. I do not argue with either point. I will admit that there have been instances, like 1977, when a dry winter was followed by a summer when the rains did not come in time to produce a good crop. However, I also remember years like 1999-2000 when the dry weather in the fall, winter and early spring was followed by timely rains just when we thought the crops were lost.
My experiences have taught me that weather seldom changes gradually. Just the opposite of 1974, this year might see the weather turn out wet and yields flourish because of early planting and ideal conditions for doing other field work. I am not predicting that will happen, I am just saying that it is possible. Make plans based on the probability of an average crop. Look at yield history and figure that this year will probably be average. Crop insurance is a back up for marketing strategies as well as agronomic programs.
A very wise individual who farms in a dry area says that if you plan for a disaster you will probably get one. Research shows that planting at high populations does not necessarily result in reduced yields in dry years. Reducing fertilizer rates limits high end yields, if the summer weather turns out being normal.
Marketing strategies that rely on forward sales of new crop grain early in the growing season may be drastically affected by weather. Early sales may turn out to be a disaster if yields are reduced. However, in some years like 1988 and 2000, June sales in the face of production problems turn out to be very profitable. Seldom does a weather rally last through harvest. Even in a year like 1974, I would have been better off staying with the sales made early in the year instead of getting out when it was obvious that we were in a full fledged drought.
The big challenge is in timing the sales to capture the price appreciation without selling more than you will produce. Options can be a useful tool if implemented wisely. However, simply buying option on all production can result in losses on both sides of a strategy.
One farmer commented that with prices where they are and with grain stocks so low, it could be a really interesting summer in the markets. I totally agree. It does not take an economist to know that volatility will be extreme and that the trade has a better idea of yield potential for the 2012 crop.