Across the Editor's Desk: Mid-March 2007
This issue of Successful Farming magazine arrives in your mailbox less than two weeks before the March 30 USDA Prospective Plantings report. As I write this in late February, corn and soybeans are still fighting for acres.
Have you made some pricing decisions ahead of the report? If you are debating when to forward-price or how to manage all the risk, I invite you to read the four regular market analysts of Agriculture Online.
Each week these analysts post their commentary. They tend to take a longer view of marketing. They also focus on risk management and factors impacting profit related to costs as well as pricing.
Ray Grabanski, Progressive Ag, Fargo, North Dakota:
"Could we see $5 corn yet this spring? This is certainly a possibility, and Pro Ag leans toward the probability of both $5 corn this spring and even sub-$3 corn by this fall if the market does its full job this spring/summer.
"We need to first ensure the rapid acreage expansion of corn needed this spring (will $5 corn do it???), and then with a good harvest, prices could retreat sharply to punish those who didn't price it on the big spring rally (which enticed the corn acreage in the first place).
"Of course, the predictability of this type of market is not strong, with weather playing a large part yet this year. But both $5 and $3 corn are possible, and itâ€™s also possible we will see both by harvest (in fact, the market probably needs to do both to really do its job this year)."
Roy Smith, retired farmer and speaker, Plattsmouth, Nebraska:
"I prefer put options as a pricing tool. With options you can choose price levels that fit your bias. If you think prices are sure to go higher, you can buy an out-of-the-money $3.80 put on December corn for 19Â¢ and have about $1,000 per contract committed. If you are less bullish and want more downside protection, a $4.30 slightly in-the-money put is 46Â¢. That is pricey, but it's a better buy if prices drop."
Bryan Doherty, Stewart-Peterson, West Bend, Wisconsin:
"Note that many of the insurance products perform like a one-month put option against lower price value. If you compared insurance against purchasing a put option, you have more flexibility in coverage with a put. For example, if you purchased a $4 December corn put and prices crashed into late June on ideal weather, you can execute a strategy to keep this gain. However, with insurance, prices could crash into June and then rally back in the fall to $4, and you may collect nothing."
Ron and Susan Mortensen, Advantage Agricultural strategies, ltd., Fort Dodge, Iowa:
"The problem is the FSA has a rigid set of rules for defining cash rent leases and share leases. Simply paying a landlord more than is stated in the lease is also a problem, because the lease and the CCC-502 need to match. The tenant has perhaps the greatest risk, because an incorrect CCC-502 could result in the farmer losing all government payments."