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What Should I Do With My Remaining Cash Crops?

Dec 09, 2016

By John Berry

As expected, the world has a burdensome supply of wheat and corn from the 2016 season and adequate supplies of soybeans. This gives us two primary questions; “What should I do with what remains of my cash crops?” and “What can we do for 2017 crops?”

I believe the foundation for effective marketing is deciding what Revenue Protection crop insurance coverage is appropriate for your business. Working with a competent sales agent is critical when exploring scenarios and selecting a specific product to utilize. We will be making these decisions for our 2017 spring crops very soon. We also get as many 2017 bushels as we are comfortable with priced using either cash forward agreements with our normal cash buyers, and/or futures contracts.

Our remaining 2016 bushels give us limited pricing flexibility at this time. Remembering that I cannot predict the future; today’s market suggests we market all corn at this time or store unpriced. Selling the carry is not attractive. Soybeans are telling the same story. If we market now there is no reason to think about it any longer and we can concentrate on 2017. If we store unpriced we must have an exit strategy in mind.

An exit strategy consists of a price you are waiting on as well as an understanding of the seasonality of grain prices. If I am deciding to store corn that will fetch a strong $4.20 cash – the price I am waiting for should be at least – what? - $4.60. Otherwise why bother leaving it the bin and taking the price risk? The historical price pattern tells me I need to have these bushels priced before June. In addition to a nice big price you are waiting for what lower price would make you start marketing your stored grains? That is an exit strategy. “What price are you waiting for?” and “When will you market no matter the price?”

Looking back we see that in eight of the most recent ten years this type marketing plan helped increase the bottom line, and we delivered against profitable hedges at harvest. In two of the last ten years, you were better off selling at harvest and not doing any forward-selling, or storage. It is hard to pull the trigger, especially when prices are not very exciting. However, it is essential.

Taken from the trade press; here are four suggestions on getting your crop sold:

  • “It was really dry in my area, and I didn’t know how big my crop would be.”
  • Grain production takes place in a global marketplace. The weather on particular farm and in a PA county does not matter. If you are too worried about your production risk to make sales, then you need to find someone on your farm who can make those sales. Don’t be ashamed to do it. Your marketing plan can include having someone else pull the trigger for you.
  • “I thought crop insurance would protect me against lower prices.”
  • Crop insurance works beautifully as part of a price risk management if you get sold ahead on your insured bushels. When sold ahead and if your end up with a small crop and higher prices in October, crop insurance payments will help you offset your losses.
  • “Everything I read on the internet was bullish.”
  • Somebody is always bullish. The news is often bullish at the top. Be wary, because the news is often bearish at the bottom. We need to make marketing decisions based on what is right for our own farm – not what is on the internet, or in a glossy magazine.
  • “The USDA is wrong.”
  • The USDA has an excellent track record. It is not right all the time because conditions change, but assessing the role of USDA numbers in the grain markets, trading against it is typically a marketing mistake.

Colleague Ed Usset tells us one key to effective grain marketing decisions is minimizing our mistakes. Swinging for the fences attempting to achieve maximum historical prices can result in too many strike outs. Be sure to watch your Extension communications sources for grain marketing educational opportunities over the coming winter months as we practice lifelong learning and secure the economic viability of our businesses.

Source:psu.edu