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3 steps to manage grain market risk in 2014

The extreme price moves the last two years have given me two textbook examples of how my three-step risk-management plan works. I learned a lot about margin calls and rolling up put options in 2012. In 2013, the hedges worked great, and the puts helped protect income.

In both years -- 2012 was the year of the a huge bull market in grain prices; 2013 was the year of the huge bear market when grain prices collapsed -- my three-step risk-management plan worked to protect my corn and soybean income.

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Have grain prices hit bottom? Many say yes.

When the corn market dropped under $4.20, the phone rang at least twice per week -- sometimes daily -- with a farmer who said, “I read on the Internet that corn futures would drop below $3.00 per bushel by the fall of 2014.” The professionals seemed to agree; a lot of the conventional supply/demand economists are getting really bearish. It's almost been like a contest to see who can project the lowest price.

I don't agree.

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Hedges or puts: 4 rules for better decisions

A farmer asked two excellent questions at a marketing seminar last winter. I, along with another instructor, researched the answers. Now they have become part of one of the option classes in the Successful Farming(R) Marketing Academy.

The first question: “What works better: Hedging about 50% of my corn crop at the end of June or buying puts on 100% of the new-crop corn?”

The second question: “When is the best time to put on those hedges?”

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Your Profit: Watch South America

U.S. farmers had another challenging crop-production season in 2013. This created a lot of volatility in the spring when planting delays threatened corn yields and in late summer when a drought took its toll on soybean yields. As combines are being put away, U.S. farmers ended up with a great corn crop and a fair soybean crop. The record 14 billion-bushel corn-crop projections proved to be too optimistic, and it appears it will be another year of disappointing soybean yields.

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Three signals grain lows are in

The long-term grain price cycles I work with and my analysis of grain fundamentals both suggest major lows in the fourth quarter of 2013 or the first quarter of 2014. Let me explain.

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Add $50/acre to your bottom line

Farming has changed a lot in the 38 years that I’ve been writing about marketing grain. Before the Internet, you didn’t have GPS or autosteer on your farm equipment, but you’ve quickly adapted to new technology, and the pace of change is increasing. Changing technology has also altered the way you sell your grain. You now have a number of marketing alternatives that were not available 30 years ago.

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