A positive return is all Ken Norton asks for from his Bronson, Mich., farm. He does that by maximizing margin management to match input costs with market trends on his corn, soybean and hog operation.

Norton is part of the Kendale Farm partnership, which typically grows 900-1,000 acres of field corn, 600 acres of seed corn and 1,200-1,300 acres of soybeans. Most corn production is marketed through the hog program. “We run 1,425 sows and produce 32,000 pigs a year,” Norton says. “We finish about 6,000 and sell the balance.

“I don’t look for a set margin of cost plus 10-15%,” he says. “More than that, I look at potential sales of my hogs as relates to my cost of production. If you know roughly what your cost is, then taking steps to obtain potential prices is more attractive.”



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While most field corn is marketed through the hogs, futures or options back up seed-corn sales to Pioneer Hi-Bred. “Our average corn price is about $6 per bushel,” Norton says. That includes $5.50 put options that can help capture downside shifts in futures prices.

Beans are marketed with cash sales to a local elevator. Sales for 2013 beans are in the upper $11 per bushel to mid-$12s. “I priced about two-thirds of our conservative yield projection of about 45 bushels,” he says.

Norton looks at margins over just prices. “I like to price fertilizer and other inputs early, but in making crop sales, it’s not as direct a correlation as it is with buying hog inputs and making sales,” he say. “I meet with my consultant to look at corn and bean pricing opportunities.”

He talks weekly with Gavin McPherson, consultant/analyst with CIH in Chicago. CIH emphasizes margin management. It walks producers through a process of identifying a farm’s input costs, yield potential and overall financial goals, then advises them how and when to lock in a margin.

“It starts with determining inputs as accurately as possible,” McPherson says.  “We plug them into a margin calculator using a historical price and basis format.”

From there, production cost is measured against current prices and future prices. “We look at margins in ‘percentiles,’” McPherson says, adding that, margin percentiles don’t necessarily match the percentage of price over or under production costs.

For example, December 2013 corn futures at $4.80 on July 24 was the lowest price level for the last 10 months. “At $4.80 for the 2013 December corn contract, a typical Midwest producer could attain a margin of about the 13th percentile of the past 10 years,” McPherson says. That was about $2 lower than the 75th percentile that same producer could have attained last September through December when December 2013 corn was about $2 higher,” he says.