What is in this article?:
- Base risk management on cost of corn, soybean production
- Marketing for 2013, 2014, 2015
- How does your budget stack up?
Iowa farmer Dave Hommel determines his costs, and then works to make sales to cover inputs and generate a reasonable profit. He's not one to wait on the next higher futures price tick.
Marketing for 2013, 2014, 2015
Projected prices for 2014 are nothing like those seen in 2012 and earlier this year. “What a run we’ve been on the past five years,” says Steve Johnson, Iowa State University Extension farm management specialist. “But Dave is not setting on his laurels. He is looking to build on working capital as well as risk management. If you don’t have both of those in play, you’re in trouble.”
Hommel adds, “The advice I’m seeing is that grain marketing could be worse further out. So when corn rallied back a little in late August, I started looking at 2014 sales in the $4.80 range and beans at $11.50 to $12. I’m considering selling a sizable portion of 2014 and even a little bit of 2015.”
Those marketing moves were made while he still had 2013 corn to market. About 40% of this year’s commercial corn was sold via hedge-to-arrives (HTAs) in the $5.50-5.75 range. “Those were over the March 2014 futures contract,” he says. “I chose not to set the basis because it typically improves about January following harvest pressure on prices.”
His marketing philosophy of making orderly sales hasn’t been easy. “With $7-8 corn and $15-17 beans post-harvest the past two years, it makes it hard to feel like you’re a good grain marketer when you have made early $6 corn and $14 bean sales,” he says.
“Prices are that much more volatile now, all over the place. It adds to the emotion. “But I’m not for making crazy, rash decisions to where I’m not making any sales early. You have to have something for a rainy day. And that rainy day is coming, with lower prices projected.”
Along with revenue-protection crop insurance, options are also part of Hommel’s marketing. “In the past, I have used options for unpriced grain with the elevator,” he says. “I like put options more than calls, so I can set a floor on corn or beans not covered by HTAs or cash sales.”
He notes that price volatility increases the importance of on-farm storage. “We store most of our production,” he says. “Again, if it doesn’t go to the hog operation, it is protected by HTAs with basis to be set later, or will be sold later during a price rally.”
There is talk that many growers were still unsold on 2013 corn when September arrived. “It’s a lot about ego,” Johnson says. “They don’t want to be seen as selling too low. Seeing $8 corn and $17 beans did more damage than about anything.”
Hommel’s not waiting for a drought rally. “What kind of crazy marketing plan is it to take a do-nothing approach, then it pays off the best like it did last year,” he says. “That’s what happened for many. But if you try to bank on that more than one year – you lose.”