With corn and soybeans rallying to new all-time highs, having a feasible marketing plan can really help.
Here are six key steps that you can take to create that plan.
- Gather information about your crop
Take the number of acres of corn times your estimated yield to compute the number of bushels you have to sell. Do the same for soybeans. Determine if you have enough storage for your entire crop. If not, shop around for the best storage deal you can arrange.
- Evaluate what you should store and for how long
Figure out how much money your crop is worth if you sell it all for delivery right off the combine. Then check on the corn and soybean bids out into January of 2009, March of 2009, and all the way into July of 2009. By looking at the further out bids, you can see if the market is paying you to store your corn or soybeans and for how long.
The rally to record highs and the extreme volatility created by too much rain and flooding throughout the Midwest has made using all the different market alternatives more important than ever. Producers who have used a combination of hedges and puts are in a good financial position. Producers who were 100% hedged and lost their crops in mid-June took a double financial hit.
Making the right merchandising decision is still important. At this writing, it's easy to see that if I have to store corn or soybeans in commercial storage in town, I will take the soybeans and place them in commercial storage. For the crops I have stored on my farm -- it only pays to hold my soybeans until January. (These carrying charges change all the time, so make sure you figure this out for your farm). You can save a lot of interest when you sell $13 soybeans and pay off debt at the bank.
The corn bids at this time are high enough out into March-July 2009 to justify holding the corn I have in my own storage for later sales. Also with a smaller corn crop this year and more ethanol plants coming online all the time, odds are good I will have a better basis by next summer.
- Be aware of seasonal price pattern for corn, soybeans
Review the six-year charts above and on the next page. Corn and soybean prices have soared higher in the last three years, but the basic price pattern of August-October lows followed by highs in March-July of the following year still works. Being aware of the pattern, you would avoid sales from August out through the month of October. If I am a livestock feeder or an ethanol shareholder, I am looking for a place to buy cash corn or soybeans in the next two months.
- Use a variety of selling alternatives
I have suggested that my subscribers have 30% to 40% of the 2008 crop hedged during the March-June rally. I've also bought puts on another 30% to 50% of the crop. I've lost money on the puts, but the cost is minimal compared to the higher prices I am now able to lock in. We are fortunate to have a lot of different alternatives like cash contracts, hedges, HTAs (in most but not all areas), puts, and minimum price agreements. To spread out your risk, it's important to make incremental sales and also to use all of the different marketing tools available.