Posted by: usset001 | January 30, 2014

2014 pre-harvest pricing opportunities in corn

corniconI recently received an interesting question from a reader of my column in Corn & Soybean Digest.

Question: In the January issue of Corn & Soybean Digest, your column showed a 2014 marketing plan that has corn prices from $4.90 up to $6.00+. You really think they’ll get there? If so, why/how?

My reply: Your question gives me the opportunity to explain two important parts of my pre-harvest marketing plan for corn; the minimum price objective and decision dates.

The $4.90/bu. cash price ($5.40/bu. Dec’14 futures) is my minimum price objective, and it is consistent with my projection for production costs in 2014. I know that new crop pricing opportunities are not there today – in Southern Minnesota new crop corn bids are about $4/bu. I am reluctant to make new crop sales at prices that I know are below my production costs. That does not mean that I have thrown in the towel on all pricing efforts. Rallies can happen, so keep the plan close by. If prices do not get better between now and harvest, I will simply do no pre-harvest pricing. But pre-harvest pricing is just half the game and, after harvest, we will take a fresh look at post harvest opportunities and whether or not to store grain.

Concerning my minimum price objective of $4.90/bu., this not a figure etched in stone.  I encourage farmers to take a sharp pencil to their own production costs. You may be able to justify early sales based on lower production costs. And here’s a hard choice for you to consider: even if the current new crop price is below your costs, you may want to make a few sales JUST IN CASE the market is trending even lower in the months ahead. We like to think that all sales are driven by the desire to maximize profits – sometimes we need to consider ways to minimize losses. Tough call. This is the “not easy” part of marketing.

Now about that $6/bu. price objective on the high side. I always tell producers that my minimum price objective is the most important number in the marketing plan because it is your starting point for action. I also tell producers that that my higher price objectives – every price objective above the minimum – are the least important numbers in my plan. That’s due to the use of decision dates in the plan. Note that every one of my price objectives above the minimum also has a decision date, e.g. “Price 10,000 bushels at $5.70c/$6.20f, or by April 15.” The decision date is the day I am committed to pricing grain whether or not I reached the price objective – my only requirement is that on April 15, the pricing opportunity must be higher than my minimum price objective ($4.90 cash or $5.40 futures).

Decision dates makes the marketing plan a real plan for action. They place my higher price objectives into a “nice to have but not so important” category.

This year is shaping up to be a real challenge for producers. New crop prices for all of the major grains have slipped below production costs. Marketing is not easy.

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