Nebraskans use hedge-to-arrive contracts With talk of drought and strong demand, Ken Maca was wondering if selling part of his corn early based on $2.50-2.65 futures was a smart move. He felt the same about $5.50 soybeans.
Dick Prascher, who had corn early marketed at $2.70 plus, also questioned whether he had jumped the gun.
But by the Fourth of July, when December corn had sunk to $2 and November beans hit $4.70, both wished they had that much independence from low prices on all their crops.
The volatility of commodity markets always has some group shaking its head. Historical charts show that new-crop corn and beans nearly always peak in price about July 1. However, mid-90s dry spells caused prices to alter their paths. Prices rose after drought hampered pollination and overall growth. Can you say, "five-dollar corn?"
Those numbers weren't predicted for 2000. But many experts saw $3 corn and $6-plus soybeans as possibilities. But even when forecasts are for higher prices, Maca and Prascher know it's hard to go wrong locking in a decent floor.
"I like to have 30% or more of my new-crop corn and beans sold by February or March (prior to planting)," says Maca, Staplehurst, NE. "I look for another 30% sold by early summer and a total of 70% when I get to harvest."
He reached part of his goal when he used hedge-to-arrive (HTA) contracts to secure early sales. In early spring he contracted to deliver corn based on $2.45 and $2.50 December 2000 futures. He later contracted to deliver corn at $2.55 and $2.65, based on March 2001 futures. The sales totaled about 30% of his average production on 700 irrigated acres. He also locked in $5.50 soybean HTAs based on November futures.
In all the sales, he can set the basis anytime before delivery. "Our corn basis has been wider (30-40› under futures) the past few years," he says. The hope is that the basis will narrow to about 20› under at harvest when growers are holding their grain for higher post-harvest deliveries.
Maca notes that, since half his production is dryland, he was hesitant to lock in more production because of the projected dry weather.
Prascher, who also irrigates much of his crop, saw his farm near Kearney, NE, facing those predicted dry conditions in early July. But rains in the central Corn Belt had pushed prices down.
"I'm glad I had part of my corn sold based on $2.68 and $2.72 December futures," he says. "They are HTAs. I just wish I had gotten more priced early."
He did no early marketing of soybeans because of confidence in a stronger supply-demand situation later in the year. "I see better bean prices," says Prascher, who's a charter member of the National Biodiesel Board of the American Soybean Association and has long been interested in new uses for the crop.
Alan May, extension economist at South Dakota State University, says growers should consider marketing part of their corn or beans anytime there's an opportunity to lock in cash prices above government loan rates (about $1.75 for corn and $4.80 for beans).
"We advise growers to develop some sort of marketing plan that fits their situation," says May. "Usually, if you can look at an LDP of 35› or above on corn and a locked-in cash price of $2-2.10 on a percentage of your crop, that will probably look pretty good compared to harvest-time prices."
Richard Brock, head of the Brock & Associates consulting firm in Milwaukee, WI, says the projected dry weather made many afraid to lock in early prices. "But if growers have irrigation, can almost assure production and can see a profit, they should always consider marketing one-third of their crop early," he says.
In the meantime, says Brock, growers most likely should store their grain at harvest, set the LDP, then wait for a price rebound.
Maca notes that, if prices rebound enough, he'll go ahead and market part of his 2001 production.
"If the price is there, it's never too early," he says.