At a recent seminar, a frustrated farmer shared how he'd sold his entire corn and soybean crop off the combine the last three years.
He knew he had to do something different, so he signed on with a Chicago company that forward priced 150 bu/acre of corn ahead and 45 bu of soybeans ahead using an averaging price product in the January-June time period. Now he's even more frustrated.
If you review our long-term track record, we've consistently hedged 20-40% of corn ahead each of the last four years. In the last three years, our earliest sales were always the best sales. This year, our first 20% new-crop sales are at price levels about 30¢ below the current market. Producers who have followed our call recommendations are only out 15¢/bu.
Be willing to sell 20-40% ahead each year. If you hit your profit objectives, you'll gain enough most years to offset a year like this. One mistake you may make is not looking ahead to 2003 prices.
We've been reluctant to sell new-crop soybeans because the price hasn't shown a good profit. Also, net selling price to the farm has been less than the government target price guarantee.
First, consistency and discipline are key ingredients in a successful, long-term marketing plan. The first chart objective that we've had for new-crop cash soybean sales is $5.92. At that price, producers will receive all the benefits of the target price program — in the cash market.
Second, diversification is crucial when you're using a new advisor or if you're entering your grain into a managed grain program. I've encouraged producers to commit a maximum of 50% of their anticipated crop in this type of managed grain program. Then, if possible, make sure the program is diversified.
The bottom line is that if you've sold corn ahead at an average that is 30¢ below the current market on 40% of your crop, it reduces the sale price by 12¢/bu when you prorate it across 100% of your crop. However, if you've priced 100% of your corn crop ahead at a price that's just above loan, you've destroyed your profit potential for this year.
If you look at the long-term seasonal pattern for corn, you'll see that selling ahead works in eight out of 10 years. This may not be one of them, but any marketing rule that works 80% of the time is still worth using.
Alan Kluis is executive vice president of NorthStar Commodity Investment Co. If you have marketing questions or want more information, write: NorthStar, 1000 Piper Jaffray Plaza, 444 Cedar Ave., St. Paul, MN 55101; call: 800-345-7692 or e-mail: email@example.com.
December 2002 Corn chart analysis shows a significant low on June 11 at $2.19. That was followed by the first leg up to a high of $2.52 on July 1. Prices then fell lower to the low on July 12 at $2.29 ¾. The next leg up was 34¢ to the $2.64 high. The low on August was $2.56. This then sets up chart objectives at $2.88 and $2.90/bu. The longer-term weekly and monthly corn charts show resistance at $2.92, $3.12 and $3.20. Those are all key areas to consider additional incremental sales. This was the first year in the last four that selling ahead didn't work.
December 2001 Corn chart analysis shows a major high in December of 2000, followed by a lower market into June 2001. The 12-day weather scare rally was the last chance to sell ahead above loan before prices fell to new contract lows during the last part of harvest, in late November 2001. A large crop making new-crop sales of 20-40%, and collecting a large loan deficiency payment (LDP), made corn farming very profitable in 2001 — even though prices were low at harvest. Selling corn ahead worked well in 2001, just like it had in 1999 and 2000.