Earlier this week, I spoke with an ag writer. He was looking at volatility and thinking about the challenge of pricing 2011 crop. He asked, “How do you handle this volatile pricing environment?” I replied that I really didn’t think much about the current volatile environment because I have a marketing plan and I’m already in - my mythical farm is 50-60% priced for 2011 (yes, too early and too cheap) and I have plans in place to finish pre-harvest pricing in April.
Why should I dwell on 2011? Commitments have been made and I’m not a big fan of re-ownership strategies. I am, however, a fan of looking ahead, and that’s why I am starting to think about the 2012 crop. In fact, I think that it is time for everyone to start thinking about 2012.
I don’t want you to think about 2012 because I believe the market is nearing a high – my motivation has nothing to do with a market opinion. My motivation is the desire to tie my production and pricing decisions together.
Many producers are already entertaining quotes for fertilizer for fall application. Many producers own their land or have multi-year land rent agreements. For those of you who have the land and fertilizer locked down, you have established two of your most important and variable production costs for 2012. Lock in a price and you lock-in a positive margin. With Dec’12 corn trading near life-of-contract highs of $5.67/bu., I estimate that a corn belt producer could lock in a profit of at least 50 cents per bushel and, for some, 2 or 3 times that figure.
The summer of 2008 is still fresh in my mind. Grains prices were very high (though starting to trend lower in July) as were fertilizer prices. Too many farmers bought high-priced fertilizer and signed high-priced rental agreements. The only thing they forgot to do was price some of that high-priced grain.
Margin managers will tie production and pricing decisions together.
The 2012 pre-harvest marketing plan shown here is a draft. No actions have been taken to-date, but I’m giving it some serious consideration. Maybe you should be giving it serious consideration too.