For corn, a significant rally will be difficult with the amount of unpriced old crop and another good growing year. End users tell me any board rallies will continue to shake some bushels loose. Many unpriced farmers continue to wait, because they don’t have an exit strategy.
Some farmers (who don’t have marketing plans) asked me recently what I would do if I were them. Most are shocked when I suggest forgetting about their 2014 crop, and instead focus on 2015 and 2016. Farmers can still get premiums in the market if they shift their focus more long-term. The 2014 crop has no real story left, and by continuing to ONLY focus on it they are giving away profits and potential on 2015 and beyond. Too many farmers focus short-term without looking forward. Savvy farmers are planning years in advance.
Informa reported more bean acres than the USDA. If true, with good growing conditions, the downside to beans could be significant. Similar to corn, a rally is unlikely as weather conditions continue to be favorable.
Are you watching the bids around the country?
Last week several clients had the opportunity to sell grain PICKED UP on their farm for the same price a local ethanol plant (20 miles away) was bidding for delivered. Basically a facility over 100 miles away was so desperate for corn they were willing to pick up my clients’ corn for a nice premium.
Within that 100 miles there are also three ethanol plants, several shuttle loaders, a large commercial feed yard and a couple feed mills. All of these locations were 5 to 20 cents less than the price my clients received. Since my clients were already planning to take advantage of the increased basis levels, the premium was important.
As mentioned previously it is important farmers pay attention to the three big facets of grain marketing: futures, basis and market carry. Farmers who carry their own hedge can get so many more opportunities. This week, my clients received a premium by being able to choose the location with the highest bid. My clients hadn’t used this location in the past (and they may not use it again), but by having their bushels hedged in their own accounts, they could take advantage of a five-cent premium.
Saving money = making money
With grain prices so low, there is so much talk about saving money this year. Farmers are looking for ways to trim the bottom line. While saving money is great, some ideas I’ve heard seem counterproductive. One idea I heard recently was to cut fertilizer overall by 10%. Now, if the farmer has thoroughly analyzed his fields to show where nitrogen levels could be adjusted/reduced, that’s one thing. But, a blanket reduction in fertilizer by 10% to save money (which is what they were suggesting) is reckless.
I’m always surprised by the farmers that bristle about working for an extra 5 cents (like the example above). That 5 cents per bushel is $8 per acre in savings (assuming 165 per bushel per acre). Assuming production inputs at $400 per acre, this small tweak in marketing strategy is like a 2% savings.
Farmers need to be diligent at ALL times and in ALL aspects to maintain profitability in leaner times. Savvy farmers are evaluating every expense for its return on investment (ROI) and squeezing every penny out of their marketing strategy. The most profitable and successful farmers know that every 5 cents matters in their marketing program.
on grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.
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