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Your midsummer market review
I need help with my marketing. Every corn and soybean sale I make has gone against me,” was the first comment from a farmer at a seminar in early April in western Minnesota. He wanted to know how I could help him make better decisions.
December 2012 CBOT corn
I had him fill out a marketing profile that showed how many acres he had, what his yields were, and where he sold his grain. His responses helped me evaluate which of my marketing services would work best for him.
When I looked at his results, I thought he had done a pretty good job. He'd sold some soybeans ahead last summer at a good price level but had panicked and sold too much after the bearish USDA reports in January. Then he wrapped up his sales when nearby corn futures rallied to $6.40 and nearby soybean futures rallied to $13. I told him he'd done a pretty good job, but I could help him avoid panicking when prices were low.
I look at the time span for marketing crops 18 months before harvest and six months after. I then do periodic reviews of a farm's profit-and-loss potential. Right now, we're entering the fourth quarter for getting the 2011 crop sold; we're in the second quarter for the 2012 crop; and I'm just starting to evaluate margins for 2013. For 2013, the margins are very tight.
Control the bottom line
Over three decades of working with farmers, I've noticed that producers would make really good profits for two or three years in each decade, break even for about five years, and then lose some money for two or three years. It was important to set some money aside in the good years to help get through the lean ones.
Looking ahead for 2012 and especially into 2013, I see much smaller operating margins. With higher operating costs and the cutbacks in the farm program payments, there is also more financial risk than ever. I'm not forecasting a crash in farm profits or land values like in the mid-1980s. I do anticipate a time period when costs go up faster than gross, which will squeeze a farm's bottom line.
4 strategies for success
In today's environment, making better marketing decisions is more important than ever. The decisions you make in the next three months will have a large impact on your farm's profits for 2012 and 2013.
To be successful in your marketing, execute these four strategies to take control of your bottom line.
1. Get real. The odds of having profit margins in 2012 and 2013 like you had for your 2010 and 2011 crops are somewhere between slim and none. Plan accordingly and lock in the positive margins when they're available.
2. Stay consistent. If you sold ahead 30% to 50% of your crops the last two years, you weren't always happy with the results at harvest. On the other hand, if the day you made the sale you were also locking in a good margin, then keep at it.
3. Don't look back. Once a new crop or cash sale is made, don't worry if the market moves higher. Your only logical question is Where do I make the next sale? Monday morning quarterbacks are rarely, if ever, starting quarterbacks.
4. Stay disciplined. If you normally make five or 10 new-crop sales in the April-through-July time period, stay at it – especially if the market keeps moving higher.
In addition to the four strategies listed above, I have some basic nuts-and-bolts suggestions for making better decisions.
• Put together a marketing team. This should include your bookkeeper and possibly your lender along with your grain buyer if he or she is available and is willing to help. It's important to include the next generation by having your son or daughter or daughter-in-law learn as much about marketing as possible.
November 2012 CBOT Soybeans
NYMEX Weekly Gasoline
NYMEX Weekly Natural Gas
• Schedule weekly meetings with an agenda and written action plans. I know you're really busy this time of year, but you need to think of how many dollars per acre you're growing. So take time to work on your marketing every day. The most successful farms I work with have early Monday morning marketing and planning meetings.
• Have monthly marketing and financial review meetings. Look at all the numbers and chart them out.
By the time you read this, the last of my 2011 cash corn and soybeans will have been sold. Here are my specific plans for locking in profits in 2012 and 2013.
• For the 2012 crop corn, I have between 30% and 40% of the corn hedged ahead into the December 2012 corn at an average of about $5.90 per bushel. I will only consider more hedges by putting on more puts if December corn rallies back to $5.70 or higher. If I have storage available, I will roll my December 2012 hedges ahead to July 2013 if the carry goes out to 32¢.
• For the 2012 crop soybeans, I have between 40% and 60% of the soybeans hedged ahead into the November 2012 soybean futures at about $13.40 per bushel. I have the other 40% protected with puts. If futures rally up to $15 or higher, I will take off 20% of the puts and put on another 20% hedge.
I have also recommended RP crop insurance. Add this all up and with good yields plus the hedges and puts I have in place, this plan will create another good profit year in 2012.
For 2013, I haven't recommended any sales yet. If you own your land, consider a 10% or 20% sale if December 2013 corn rallies back to $5.90 and if November 2013 rallies back to $12.90 or higher.
I have not aggressively pushed to get 2013 sold ahead because the margins aren't that good, and I haven't been able to get my inputs locked in.
2 Steps to take
Here are two steps to consider taking late summer or early fall.
1. Look to lock in fall gasoline, diesel, propane, and natural gas in the August-through-October time period.
2. Try to lock in land contracts on any rented land for 2013. This will allow you to get a good estimate on the breakeven for your 2013 crops.