Posted by: usset001 | August 17, 2010

I like bumper crops and summer price rallies in corn, soybeans and wheat

Wheat leads the way

I like summer rallies. Wheat is leading the charge and creating all sorts of profitable pricing opportunities in wheat, corn, soybeans and other crops. Are you behind in pricing your 2009 crop? Here is yet one more chance to get something done. Word from farm country is that many producers are selling – we might have a space problem before the 2010 harvest starts.

Have you been dragging your feet in pricing 2010 crop? On top of that, does it look like your crop will far exceed a “normal” crop? Minnesota farmers, in particular, need to address the challenge of managing a bumper crop.

Bumper crops create challenges like the following. You priced 100 bushels per acre of your anticipated 2010 crop. Based on an APH yield of 153 bushels per acre, you thought you had priced 65% of your anticipated crop. Last week you did a yield check and it appears that your farm has a shot at averaging 193 bushels per acre. Guess what? You are not 65% sold – you are closer to 50% sold.

Prices are higher and opportunity is knocking. What are your alternatives for pricing the overage?

  1. Build more permanent on-farm storage: I think it is too late in the game to play that card.
  2. Build temporary on-farm storage: I hope you know what you’re doing. I’ve been hearing stories recently about trucks full of 2009 corn and a funny smell heading to market.
  3. Buy put options: This is always a possibility and it fits nicely with uninsured bushels because options do not entail a delivery commitment. An at-the-money December corn put will cost about 30 cents per bushel. An at-the-money November soybean put will cost about 40 cents per bushel and it will expire in four weeks. Why do options have to cost so much?
  4. Forward contract for harvest delivery. Now is the right time to remind yourself that some elevators may be reluctant to unload your huge crop if you do not have a contract with them. Yes, I agree that basis levels are not very attractive. But the board is higher and you need to be certain that you can find a home for your bounty.

A bumper crop and higher prices; these are the type of problems we like to have. How do you plan to meet the challenge?


Responses

  1. An ATM November soybean put option will expire in 65 days….


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