Posted by: usset001 | March 25, 2011

Looking ahead to 2012 and pricing corn

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.


Responses

  1. If I reading your plan correctly, if you put that plan into place today you would’ve priced 30k bushels at $5.65ish Dec ’11 futures? It seems like a reasonable move to me!

    • Yes, you are reading it correctly. For now, however, it is just a draft. But it has me thinking, and it should get everyone thinking.

  2. I’ve heard fall ’11 fertilizer prices being quoted at $500 urea, $670 DAP, and $585 potash (25% down payment) in the southern RRV. That equates to about $135/acre for corn. That’s about 15-20% above the prices guys paid for fall ’10 fertlizer. Spring ’13 corn prices ($5.20 cash) should equate to about a $1.00 profit for most producers (if their land costs don’t get to wild over the next 6-12 months, and that’s a big if).

  3. 04/07/11 Sold 60% of 2011 Beans for 13.90. Should I sell the balance now?
    I have 25

    ED, Are we still on the up-swing of the ferris wheel at the carnival or are we about to the paint where it seems there’s nothing under us any more, corn or beans?
    We’ve sold 60% of 2011 guaranteed bean yeild for 13.90. We Have an offer in place to sell 25% of 2011 Dec corn futures for 6.50. How about 2012? Seems like 5.75 for Dec 2012 futures might be a reasonable place to start.?

  4. […] one month ago, I posted a draft of my 2012 pre-harvest marketing plan for corn. At the time, Dec’12 corn was trading at (what was then) life-of-contract highs of $5.67 per […]

  5. Very interesting idea. I know when corn hit $5.00 a few years ago, I was wondering why I didn’t contract out for the next two years. I do my marketing through Cargill and currently have 25% of my 2012 crop sold for an avg of 5.95 for Dec 12. I have my NH3 locked in for $750/T and have a pretty good idea that seed will be up 10% next year. All cash rent leases have been locked in for the next 3-5 years. Therefore, I know what 75% of my input cost will be for 2012. Why not lock in a profit!

  6. selling some 2012 when you have locked in some 2012 inputs/expenses only makes sense…….you don’t go broke making sales that make $ense

    personally if I had a strong opinion of the market I think there would be more creative ways to market the 2012 crop……..but they would be adding a little risk/reward to the equation…….perhaps not as simple as it should be


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