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Do better in 2012
As harvest wrapped up across the Corn Belt this fall, farmers went in to meet with their accountants, bankers, and tax advisers. Some farmers then went to buy seed, fertilizer, and equipment in order to manage their 2011 income tax bill. Other farmers went on to meet with a new banker and to see if they could get financing for 2012. Several ag lenders said they saw a very wide range of farm profits within their loan portfolio. This was evident even though the weather pattern and the yield potential were very similar in the counties where they lend.
A lot of what worked in 2011 will likely work for you in 2012. I suggest you do a thorough review of what worked and what did not work in 2011. You can learn from your management and marketing mistakes you made this year.
The largest difference for most farmers' profits in 2011 was the yield they were able to harvest. Big yields usually result in big dollars. With $6 corn and $13 soybeans, a 10- to 15-bushel drop in soybean yields or a 20- to 30-bushel drop in corn yields had a big impact on farmers' bottom lines.
I'm not a crop-production guru, but I did speak at and did attend a lot of seed and profit planning conferences this summer and fall. Following are three observations from my travels from Missouri to Minnesota and from Colorado to Illinois.
“You can learn from your management and marketing mistakes you made this year.”
1. Corn-on-corn was not worth it. Some farmers who were able to get the corn planted on time and were in an area that received timely rains in July and August were able to get second-year corn yields that were within 10% of the first-year corn. If you are one of these rare farmers, count your blessings and send your agronomist a Christmas bonus. Many farmers who were in areas that turned hot and dry in July through August took a yield loss of 20% to 40% on the corn-on-corn acres they planted in 2011. This lower yield had a very negative impact on the farm's bottom line.
2. Planting early paid big dividends. This was especially true if your corn got through the critical pollination time period with no major damage. When you get your corn planted is somewhat a function of weather, but I did see where some large well-organized farmers with a lot of drain tile were nearly done before their neighbors got started planting corn in May. With the early-planted corn yielding 30% to 50% more than the late-planted corn, the lower yields on late-planted corn had a huge negative impact on production levels and farm profits.
3. The early-planted soybeans that matured early out-yielded the late-planted soybeans. Many farmers wished they had gone with all early-maturing soybeans in 2011. I cannot recommend that you change maturities in 2012, as weather is just too variable. This year again showed the importance of spreading out your risk by choosing several different maturities. I did consistently hear that farmers felt the RR 2 soybeans were worth the extra expense. They will plant all the RR2 soybeans they can in 2012.
“What choices can you make to reduce risk and to earn more profits next year?”
The all-important sale
After accounting for changes in production, where farmers sold their cash grain and where they made new crop sales was the second most important income and profit factor. The lenders I talked with say farmers fell into these three broad categories.
1. The first group was the farmers who sold out the 2010 crop right at harvest in the fall of 2010. They then aggressively sold ahead 80% to 100% of the 2011 and 2012 crops late in 2010 or right as the rally started in the spring of 2011. They were marginally profitable and, in some cases, sold more 2011 crop ahead than they produced.
2. The second group was the seasonal sellers. They sold some grain inventory each month from January till June of 2011 when the cash corn and soybean sales were completed. In January through June, they also made some new crop sales each month.
One customer explained how he sold 20 bushels of corn per acre ahead for fall delivery at $5.50. This farmer sold another 20 bushels per acre at $6.50, and his final sale of 20 bushels per acre was at $7.50. He worked a very similar plan for soybeans. He did not hit the top but came out with a good average price for about half of his corn and soybean crops.
3. The third group sold too late. They sold most of their cash corn and soybeans in September 2011 to make room for the 2011 crop. They are holding onto 100% of the 2011 corn and soybean crop, and are waiting for a break to buy more. This group borrows a lot of money, and even with good crop yields, they will struggle to stay profitable this year. Some of the farmers that are best at production find themselves in this position because they are always too optimistic. It goes with the old trade saying, “Always bullish, sometimes broke.”
Looking ahead to 2012
What choices can you make to reduce risk and to earn more profits next year?
First: Do whatever you can to reduce production risk and to maximize production in 2012. For most, this means staying with a normal rotation and planting several different maturities. If Mother Nature cooperates, get it planted as early as possible.
Second: Work at your marketing just as hard as you work on your production. Here are three suggestions for you to start with this month.
1. In December, review your 2011 grain sales. List the date you made the sale, amount sold, and year-to-date average selling price.
2. In December, put together a marketing team. If you approach marketing with a team, you have a lot less anxiety about marketing. You are much more likely to be an incremental sellers who comes out with a good average price vs. a lone ranger who thinks you can hit the top.
3. Begin holding monthly marketing meetings. Write out your marketing plan, set goals and objectives, and learn all you can about marketing in 2012.