Forward Marketing 101A

Determine your acres. Multiply the acres by your APH, or proven yield. Multiply this number by .70, or 70%. Divide this number by 4.

Make 4 offers on corn, 4 offers on soybeans.

Corn

1/4 @ $4.25/bu for October delivery

1/4 @ $4.60/bu

1/4 @ $4.90/bu

1/4 @ $5.20/bu

Soybeans

1/4 @ $11.50/bu for October delivery

1/4 @ $12.00/bu

1/4 @ $12.50/bu

1/4 @ $13.50/bu

Review your offers and contracts on June 15. If the offers have been filled, you are in good marketing shape. If your offers have not been filled, it is time consider revising your offers.

Tongue in cheek tidbits:

No customer has ever died leaving a new crop contract behind.

He who picks bottoms ends up with a handful of ****.

The trend is your friend.

Short crops have long tails.

Get a hunch, buy a bunch.

Don’t forget which side you are cheering for.

Noah could just have predicted rain and a big flood, but he built an ark!  This was action well worth his effort.  If all he had done was to predict a huge rain and a monstrous flood, he would have been in big trouble!

When marketing grain, the first step is to plan. Acres, bushels per acre, the amount of money per acre to break even, and the required amount of profit needed per acre are all very important items.  Put all those together and it is not too hard to plan early in the growing season, before the growing season,  or even 12-18 months prior to the anticipated harvest.  In carry markets, the best prices can come very early for a given marketing year.

Making the decisions and planning the actions are difficult, but the end result can be rewarding.  With the recent slump in the grain markets, some producers are already adjusting the price levels where they would market grain.  The time of the marketing year when there is a great deal of uncertainty in the markets because of the growing season is down to a little more than two months.  By the time the August crop report is released around August 10, users think they know how big the corn crop will be.  And don’t forget that we will probably plant around 95 million acres of corn in the US this year.  With ethanol struggling to use enough corn, the prediction is for a big 2019/2020 carryout.  It is risky to wait until harvest 2020 to start marketing corn and soybeans.

I would suggest making new crop corn offers in the $3.20 cash area and new crop soybean offers in the $8.20 cash area.  These are not levels that are very profitable with normal crops, but it may be a year when it is difficult to get very big price rallies.  Just don’t get too discouraged at this point and market too many bushels at these levels. Buying put options if we have a decent rally can also be part of the marketing strategy.  If all these things are planned ahead, much of the emotion generated from rapidly moving markets can be removed from the process.

No matter how difficult it is, we need to keep making decisions.  But no action is also a decision.  Take control of your destiny!

Some simple things about Covid 19.  We will get through this, even if we have some pain.

On a continuing basis, we need to take some basic, relatively simple steps.  Wear a mask.  Wash your hands.  Avoid unnecessary socialization.  Leave extra space at the store.  Keep school canceled.  Try to sequester elders.  We could do all these things and still live our lives.  A vaccine is about 12-18 months away.  Good treatments for Covid are much closer.  The medical community is learning what works well, and what does not work well.

The stock market and commodity markets are painful right now.  They may get worse.  But they have been painful before and we still get through these times.

When the apostles were in the boat with Jesus and a storm came up, they were taught to trust in Him!  And we are certainly are in stormy times.

The corn farmer has two very important jobs.  Job number one is to raise corn for $3.00/bu, all expenses included.  Job number two is to sell this corn for $4.00/bushel.  When these two come together, everybody is happy.

Cash corn price at Geary Grain on September 27, 2019 is $3.43/bushel.  June 2019 saw new crop 2019 forward contract prices as high as $4.25/bu.  The difference between selling for $4.00/bu as compared to the cash corn price can be difference between a successful year and a rough year.

Once again, the cash price at Geary Grain is $3.43/bushel today.  The new crop 2020 corn big is $3.63/bu.  Would the average farmer sell his 2020 production for $4.00/bushel?  The answer is no, unless the plan has been laid out well in advance.  The chances to sell at profitable prices greatly increases when the plan is thought out and set in place prior to a rally in the market.

2020 Corn Marketing Plan

Determine your 2020 corn acres.  Find out what your APHs are on those acres.  Multiply your 2020 acres times your APHs.  Multiply that number by 70%.  This is the number of bushels that many producers can successfully market prior to 2020 harvest.  Offer 1/3 of these bushels at $3.80/bu, offer 1/3 of these bushels at $4.00/bushel, and offer the remaining 1/3 of these bushels at $4.20/bushel.  If there is a shortfall in production, having contracts for no more than 70% of APH production would normally leave only small numbers of bushels to have to cash settle on any remaining open contracts.  If the cash price is higher than $4.20/bu, and there are remaining bushels, the producer is usually happy about this!  Remember which side we are on, we would like prices to go higher!

Raising corn for $3.00/bu?  That can be hard too!

*Markets average one 14% annual decline

*Daily dips of 2% or more occur about 5 times/year

*Every 5 years or so, markets decline more than 30%

*Markets rise 3 out of 4 years

*Over long periods of time, markets significantly beat inflation

*Selling low and buying high never works

*Turn off the TV and don’t check your account

*Never make important decisions based on emotions

THESE ARE THE FACTS. EVERYTHING ELSE IS A SCARE TACTIC.

Corn and soybeans are both carry markets.  The deferred months are trading at good premiums compared to the nearby futures contracts.  2018 cash corn bid is $3.23, new crop 2019 corn bid is $3.58/bu, or a 35 cent, or 11% premium.  2018 cash soybean bid is $7.38, new crop 2019 is $8.25/bu, or a 87 cent, or 12% premium.  The 2019 new crop bids are much closer to profitable levels.

Producers would do well to plan their 2019 grain sales.  My suggestion would be to market 70% of APH yields, split into thirds.  Offer 1/3 of these bushels at $3.70/bu for 2019, 1/3 at $3.90/bu and 1/3 at $4.10/bu.  If  the price were to go higher than these levels, producers would still have more bushels to sell, assuming normal yields.  I would suggest a similar stategy on soybeans, offer 1/3 of the bushels at $8.50/bu, 1/3 at $9.00, 1/3 at $9.50/bu.  If these offers do not all fill by July 5, 2019, producers should reset offers to reflect market conditions.

Forward marketing grain is an option that does not cost the producer money.  Planning for and selling grain at profitable levels are important tasks and must be given priority.

In 1960, the national corn yield was 52 bushels per acre.  In 2018, the corn yield is estimated at 178.4 bushels per acre.  In 1960, the national soybean yield was 23 bushels per acre, compared to the 52.8 bushels per acre yield forecast for 2018.  This incredible increase in yields is due to greatly improved hybrids, better weed control, new technologies is preparing, planting and harvesting the crops, and a greater degree of management by 21st century producers.

With equipment that is larger and more efficient than in the past, producers are able to farm more acres and raise bigger yields from those acres.  These producers supply an increasingly larger corn crop for livestock production, ethanol production and exports while still are not increasing the acres that are devoted to production.  The soybean crop is used for livestock feed, human consumption and various other products and for the export market.

One of the effects of the great increase in per acre productivity is the steadily increasing long term land price.  Producers and landlords are willing to pay ever higher prices for land that are at least partially justified by increased per acre productivity of the land.

The increase in productivity of American agriculture is an amazing success story.

We are in the midst of a local drought. This seems to be foremost on producer’s minds.
Producers who are proactive and good marketers have new crop sales on at good prices. But dryland corn looks to be a near bust this year. Some producers are scaling back or canceling sales to more accurately reflect current production levels. There is a lot of feed crops planted wheat stubble and in places where the corn has been chopped, milo or sudangrass is being planted for cattle feed. Producers have also scaled back or stopped machinery purchases.
Most producers will survive through these trying times and will see better situations in the years to come. They have seen times like this before, and likely will see them again if they farm long enough. On the brighter side, the soybean crop needs timely rains, but we still have a chance for good yields.
Reflecting on the drought we are currently facing, I am reminded of the old saying “When times are good, we borrow money. When times are bad, we pay it back!”

Successful producers are people who can make a decision.  They do the research, do the homework, and make a decision.  But we all screw up and make bad decisions sometimes.  But the successful producers are quick to react and fix the bad decision they made.  The ability to make a decision rationally helps producers in all facets of their operations.  Good marketing means making good decisions, even if they are not at the top of the market.

Good grain marketers:

1.  Control emotions.

2.  Know their cost of production.

3.  Tailor their plan to sell at a profit.  The good marketer is always looking forward for pricing opportunities.

4.  Make decisions based on profit, not price.

5.  Have a written marketing plan.  This plan is subject to occasional revision, but not constant second guessing.  They know how many bushels they produce and they try to market these bushels.

January is a good time to develop a marketing plan.  Make your marketing plan now and act on it.

I would propose that December is a good time to formulate a marketing plan for 2018.
To start the plan, take your anticipated planted acres times your APH. Take that number times 70% and try to get that number of bushels forward contracted. Most people are happy with three pricing levels that would fill as prices rise. If all three levels get filled, your marketing problem could be that you have additional bushels to sell at a good price.
The corn market has good carry in it, while the wheat market has tremendous carry in. The soybean market has a modest carry in it. With carries all the way to next harvest, the new crop price levels are better than nearby prices by as much as 10% to 20%.
I would suggest the following:
1/3 new crop corn $3.50/bu, 1/3 at $3.80, 1/3 ar $4.00

1/3 new crop beans $9.20/bu, 1/3 at $9.60, 1/3 at $10.00

1/3 new crop wheat $3.90, 1/3 at $4.20, 1/3 at $4.50
For wheat, revisit the marketing plan April 1, 2018, for fall crops revisit the marketing plan August 1. If no sales have been made by these deadlines, either contract some grain, or put offers in at lower prices.
These are prices that could be obtained without a large rally. Also, many producers should be able to make a profit at these prices.
I saw this on Twitter lately, ” January soybeans at $10 is a thousand times better than bitcoin at $10,000.” As always, we need to stay focused on what is important.