What is in this article?:
- Farmers: Tie production costs and pricing decisions together to manage margins
- Benchmarks and data
- Lenders like margin management
With new-crop corn potentially dipping below $5, there are fears $4 could be nearby. That signals storing unsold grain, or backing up sales with call options to capitalize on price rallies, says Gavin McPherson, consultant/analyst with CIH in Chicago.
“My function is to make the farmer-client accountable, to realize where things are and to have them make a decision,” he says. “If you’re not selling today (with lower prices), you should be in a protection mode.”
Ken Norton’s average corn price this year was about $6 per bushel, including $5.50 put options, that helped capture downward shifts in futures prices.
Lenders like margin management
Increased margin management that blends both inputs and sales will be a plus for farmers seeking future financing, says Steve Johnson, Iowa State University Extension farm business management specialist.
Johnson, in reviewing data presented by CoBank at a recent risk-management seminar, says the crop production and marketing cycle is longer and more complex.
“Too many times, growers will manage the production costs first, then the pricing decisions,” he says. “But now farmers may have two to three years of production financed at one time. Margin management that addresses both the cost side and revenue side will have a higher focus moving forward.”
He says that with estimated production costs for 2014, growers will face even tighter margins with increasing costs (see ISU cost estimate charts).
ISU estimates that in a soybeans-after-corn rotation, cost for growing a 50-bushel- per-acrecrop is about $570 per acre, or $11.40 per bushel. In a corn-after-soybeans rotation, cost for growing a 180-bushel-per-acrecrop is about $798 per acre, or $4.43 per bushel. And with corn-on-corn, cost for growing a 165-bushels per acrecrop is about $853 per acre, or $5.17 bushels per acre.
"There are too many missed opportunities for managing crop margins,” Johnson says. “Tying production costs and pricing decisions together will continue to become more critical.