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Your Profit: Create a successful marketing plan

Agriculture.com Staff 05/20/2010 @ 7:37am

How do you know how big your crop will be? What level of crop insurance should you buy? What will prices do? How much do you sell ahead? This is a critical time when you need to address all these questions.

I can't provide all the right answers, but I can give guidelines that will help you make better decisions. I don't know what your yields will be or what prices will be at harvest, but I do have some suggested strategies that you can use to create a risk-management plan. You have already made your crop insurance decisions, now you need to execute a hedging program that will lock in prices and minimize risk.

If you thought you would have trouble getting planted on time or would likely file a claim, then the 80% to 85% policy would be the right policy for your farm. If you have rarely collected on a CRC claim and have a farm with great yield potential this year, then change would be the logical choice.

Many of my customers used a combination of CRC, hail insurance, and puts. This allowed them to lock in more revenue and still have a safety net that was appropriate for their farm.

When to hedge and how much to hedge are two important questions that you need to make during the 24 months before you harvest the crop and for the six months you hold the crop in storage. I will not make hedging decisions based on my crop size or what is going on in my county. I make decisions based on what the national yield forecasts are and any changes in the projected U.S. ending stocks numbers.

I will use puts in combination with hedges depending on the price level that futures are at and the total number of bushels that I want to get price protection on prior to harvest. If prices are at or below my cost of production and I need price protection into the harvest, I will use puts to protect against lower prices.

To know when to hedge, how much to hedge, and if I should use puts, I will usually look at the following 3 crop yield/price scenarios.

How do you know how big your crop will be? What level of crop insurance should you buy? What will prices do? How much do you sell ahead? This is a critical time when you need to address all these questions.

Evaluate the different yield scenarios and pricing strategies for corn. If the most recent USDA projections on acreage and yields that suggest 161 bushel per acre yield or higher are correct, then odds are good you will have prices that are lower than the lows posted in September 2009 at $3.00 per bushel. In that scenario, if you harvest a large crop and have a large portion of your corn crop sold ahead, you will have a profitable year based on the total dollars you are able to generate.

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