Until there is something big to trade, corn will remain range-bound between $3.75 and $3.95 on the May futures. Farmers are not facing cash-flow issues, so selling slows as prices fall. Because the farmer still holds massive amounts of corn it keeps pressure on prices at the top end of the range. I expect this trend to continue for some time.
Beans continue to surprise the trade. Huge harvests in both North and South America created a world record carryout, but prices have not been hit as hard as many expected. While prices were down 50 cents for last week the market is still trading in the upper 9s. Lack of farmers selling in Argentina has helped. Driven by high inflation Argentina farmers are waiting for more stable prices, and since they can’t buy U.S. dollars, soybeans are the next best thing. However, reports indicate the government may put a tax on silage bags to encourage more bean sales. The bags are a common way to store large amounts of beans in the southern hemisphere (sometimes one or two crop years are stored at once). It’s hard to predict if the beans will be sold and possibly collapse the market, or if they may rot in bags after three or four years and vanish from world carryout, thus stabilizing prices. There are many unknowns in the market right now.
Break even points and yield estimates
This week I ran the break evens for a new client. Initially, we ran a profitability test based upon conservative estimated yield numbers for both corn and beans. The test showed, based upon these estimates, they would not be profitable planting beans and would only break even planting corn. Reviewing the numbers, my client said the yield estimates may have been too conservative. After rerunning the test with more “normal” yield results, it showed they could potentially have a profit for both corn and beans. And with the run up in beans earlier in the week, it was nearly even to plant corn versus beans.
When farmers run budgets for the year, one bushel per acre yield changes can mean nearly a $10per acre difference in income more or less, depending on the average bushels per acre and the price on the CBOT.
For instance, if a farmer raises 45 bushels per acre beans, changing the estimated yield by one bushel changes their break even by 20 cents per bushel. So, if the estimate is too conservative (say five bushels), break evens can be $1 per bushel off.
Similar with corn, a five-bushel per acre difference accounts for nearly $20 per acre in income. Based upon the 165 bushel per acre national average this could change the breakeven price by 12 cents.
Many farmers do not take the time to find out what their break evens are. With tight margins facing farmers this year and possibly next, it is imperative that farmers understand these numbers. All farmers have their past performance to start building a budget. After going through the process, you may be surprised to learn your breakeven point isn’t as high as you expected.
Jon 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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