Posted by: usset001 | September 28, 2009

Post Harvest Marketing Alternatives for the 2009 Crop

grainharvestThe harvest of 2009 is about to begin and the U.S corn and soybean farmer has a lot of work ahead of them – this will be a very large crop. USDA is projecting a corn crop just shy of 13 billion bushels, based on 80 million harvested acres and an average yield of 161.9 bushels per acre. I think the final numbers will be even larger, as I trust in the adage that “big crops get bigger.” We can expect a large soybean crop too. The USDA projects 3.25 billion bushels.

So a large crop looms and corn prices  are at or below the $3 mark in much of the corn belt, and well below cost of production. Cash soybean prices are under $9 but may be closer to production costs than corn. Word on the street is that many farmers are undercontracted, i.e. they were not as aggressive with 2009 pre-harvest sales as they had been in the previous 3-4 years. If you are one of these “undercontracted” farmers, what are your marketing alternatives?

Assuming you emptied your on-farm storage of last year’s crop, we have the trusty “put it storage and pray for a rally” strategy. May Sellers is my celebrity producer who employs this strategy every year, placing her crop into on-farm storage at harvest and selling it in late May. Over the past 10 years, May’s strategy has paid-off  seven times. In soybeans, her strategy paid-off  in eight of the last ten years. You can examine May’s year-by-year results on my website here. Her returns are estimated net of on-farm storage costs. Compare her results to Barney Binless, who represents a benchmark harvest price.

While you are comparing May to Barney, don’t forget to look at Hank Holder. Hank and May employ the same strategy – put the crop into storage and wait for higher prices. The only difference is how long they wait. May exits in late May, close to the time when average cash grain prices peak. Hank is ever the price optimist and waits too long. He is my inspriation for the 11th commandment of grain marketing, “Thou shall not hold unpriced corn or soybeans in the bin afetr July 1 (June 1 for spring wheat).”

The odds for success in the “put it in storage and pray for a rally” strategy are good. But few farmers have on-farm storage capacity for their entire crop. What can we do with the remaining bushels? Outside of building more storage capacity, I see three more alternatives; (1) sell grain at harvest and re-own with call options, (2) enter into a delayed price contract with your local elevator and, (3) enter into a basis contract.

I will address each of these alternatives in blog posts this week.


Responses

  1. Ed, In your 2010 pre harvest plan for corn, what do you mean by “Earlier sales at a $.25 premium?

    • All of my marketing plans have a start date (i.e. January 1, 2010 for my 2010 corn and soybean pre-harvest marketing plans) – a date when I intend to start taking action. I am willing to price grain even earlier, but I need to get a premium price for early sales because I think earlier sales involve greater uncertanty and risk.


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