14 Things Every Corn Farmer Must Do Right Now
Steve Johnson is holding nothing back. In Indianola, Iowa, he paces the American Legion hall, walking back and forth down rows of farmers gathered for an annual ag outlook meeting.
“Corn is up. Beans are up. Sell this weather rally!” he commands. “This is a South American gift. You do not look away from South American gifts.”
Johnson, an Extension farm and ag business management specialist with Iowa State University, travels from small town to small town in February trying to convince farmers to come up with a grain marketing plan, something only half have now, he says.
“What is missing in row-crop agriculture is the discipline of producers to sell the rallies,” he tells the crowd. “Your ego is the biggest limitation.”
Marketing is the last frontier in corn and soybean production, says Johnson. We have the strategies, tools, and market planning; farmers just need to use them. “You can produce a crop in less-than-ideal conditions; you've proven that,” he tells the room.
There was drought in the Dakotas and southern Iowa last summer, with corresponding weather rallies, he explains, but few farmers sold grain into the rallies. “We've got to be more disciplined.”
Here are 14 things corn and soybean producers need to do in the next few weeks, says Johnson.
1. Sell the rallies. U.S. farmers have more grain in storage than any time in the last 30 years, he explains. Get it out of the bins. “It'll take us two years of weather problems to eat through this corn,” says Johnson. “Get rid of your 2017 corn. Some of you have 2016, even 2015 corn. Corn has a shelf life of 10 months. Don’t hang on to it for years.”
2. Lower your expectations. The average corn cash price for 2018 is predicted to be $3.30, according to the WASDE (World Agriculture Supply and Demand Estimate), says Johnson. Build a marketing plan around that. “We are not going to be above $4, folks. Lower your expectations.”
3. Grab the basis in April or May. “Don't miss this opportunity, because this basis is probably going to come apart by July,” he says. “This is the year you have to be locked on like a laser beam. This is not a year you bet on weather. Try to make a little bit of profit or at least try not to lose money.”
4. Focus on the right risk. “Don’t try to outguess the markets, the weather forecasts, or the USDA reports,” says Johnson. Your marketing plan should be based on whether you think futures are going up or down and whether the basis is strengthening or weakening. The risk of the futures price and the risk of basis should be front and center right now, along with the cash-flow risk.” February is when the basis widens, he explains, because so many farmers need cash. “It's probably worse this year than any of the more recent years due to the large U.S. ending stocks.”
5. Assume beans will boom this year. U.S. farmers will plant beans in 2018 in places they’ve never planted beans before, says Johnson, such as Texas, Oklahoma, and southwest Kansas. “They will rotate out of traditional corn and cotton, and they will plant beans. If I had to bet today, we are going to take a million and a half acres out of corn and put that into soybeans. We have way too many beans already in the U.S.,” he continues. “The ending stocks are levels I have not seen in 15 years. We pushed a lot beans into the western Corn Belt last year, and we will have the same thing this year. Our ending stocks next winter are going to be at levels I can never remember. We are going to plant record number of bean acres.”
6. Cut off the co-op. “Co-ops are going to have another record year, and you are contributing,” says Johnson. “They are making a nickel a bushel a month.” The co-ops make money primarily on basis (cash minus futures) and storage costs, he explains. Basis is a reflection of the local supply and demand. “We've got too many bushels for the amount of demand. We've had five large crops in a row.”
7. Skip the delayed price (DP) contract. “If your co-op is offering a DP, it means it needs your corn,” says Johnson. “I'm not a big DP fan. I do not like delaying these decisions. I want to price most of my corn in April, May, and June.”
8. Quit hoarding corn. You probably lost 50¢ a bushel storing the 2015 crop, and some of you are still storing it, says Johnson. “You'd have been better off selling off the combine than storing these bushels, especially if they're stored commercially.” His upside price objective of July corn is $3.95.
9. Let your wife make the call. The biggest issue male farmers have marketing corn is they can’t sell the rallies, says Johnson. “It’s greed and ego. They don’t sell the rallies because they are afraid it will go higher. Male farmers need to give half the bushels to the females, because they are theirs anyway, trust me, and she will do a better job of managing those. He will be driven by his ego to try to sell at the highest price. She will generate cash flow needs for the farm.”
10. Take emotion out of the equation. “Emotion is the biggest limitation in row-crop agriculture,” says Johnson. “We've got the hybrids; we’ve got the management; we’ve got the technology. It’s emotion that limits our ability. We store corn for two, three, even four years and wait for the market to rally. We ride this thing up and ride this thing down.”
11. Write down a marketing plan. By March 1, you need a plan in writing with a price objective and a time objective, says Johnson. For example, the crop insurance price is $3.94. Sell December corn futures when the price is above that number. “I hope I’m wrong. I hope these are the cheapest sales you make, but I doubt it. It will do what it’s done for the last seven years in a row. It will peter out by June and July.” Have a marketing plan and a time objective. Try to sell enough in this late winter and spring rally to make your cash flow work next fall and winter. Only half of Iowa farmers have a marketing plan, says Johnson, “and I can tell you who’s making money.”
12. Know your cost of production. Every farm should know its estimated cost of production to grow a crop, no excuses, he says, but only about 40% of farms in Iowa do. If you know your breakeven to grow corn is $3.47, you know when to market.
13. Get your crop insurance. The government pays two thirds of the premium, says Johnson, so use it. By March 15, you have to make a decision. “Get to your crop insurance agents now, before their hair is on fire. Your premiums will be slightly lower in 2018. Crop insurance will be cheaper, so take the money you are going to save and put it into hail. The hail coverage isn’t subsidized.”
14. Expect good growing conditions. La Niña is fading, and we will likely have a neutral summer like last year, says Johnson. However, a mild El Niño is predicted for late summer. That means record soybean yields are possible, he says. Cold and wet spring conditions in the eastern Corn Belt mean the potential for late corn planting, and that means more beans. “That cooler, wetter August could really pound us on the bean market,” says Johnson. “If that happens, there will be $8 beans off the combine.”