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Be ready to sell
While pricing inputs, DeLine watches crop sale opportunities a year or more before harvest. Corn is contracted off the September contracts and soybeans off the November contract in Missouri and Illinois. A few southern elevators also allow him to set futures off the September contract. “We can usually deliver corn and beans earlier than production areas farther north,” he says. “So the Septembers work better for us.”
Bullish on both corn and beans, he made 25-35% early sales in September 2011 when corn hovered over $6.40/bu. and beans were over $13.50/bu., adding that he chose not to lock in a comparable percentage of inputs because prices, again, were “too high.”
When crop prices started down last fall, his sales stopped. “We started making sales again when corn was about $6 on the futures and beans pulled above $13 again,” he says. “With about 650,000 bushels of on-farm storage, we’re not afraid to store corn, beans or wheat until we see a better price.”
DeLine’s corn, soybean and wheat marketing is done via consulting work with Hurley & Associates, Charleston, Mo. His first corn sales in September 2011 were at $7.06 for about 15% of his crop. He made another 10% sale at $6.01 at the end of December. Another 10% was sold at $6.08 in January. He made a small 5% sale in March at $5.63. Another 10% of his corn was sold at $5.53 in mid-June.
For soybeans, he started making 2012 bean sales last September with 10% of his expected production sold at $13.94. He then made a 5% sale in December at $11.41, then another 5% December sale at $12.06. Another 10% sale was made in late January at $12.13. The next sale was in March at $13.23 for another 10% of the crop. Another 5% sale was made in late May at $13.85, with one more 5% sale in June at $13.73.
DeLine used both futures and cash contracts for the sales, adding that another 10% of his corn and beans were sold during the weather rally in late June when corn surged to $6.50 and beyond, and beans flew past $14.
In mid-July, after corn and bean prices exploded due to the drought, another 10% of beans were sold at $16.40. And 10% more of his corn was sold at $7.80. “Those were cash prices for fall delivery,” DeLine says.
So with about85% of his fertilizer purchases made by early February, he still had only 50% of his corn and beans marketed in late spring before becoming about 70% sold in mid-July.
“I can see where guys try to buy inputs equally with making sales,” DeLine says. “But sometimes it makes more sense to hold off on too much pricing if grain prices are too low.”
Gary Schnitkey, University of Illinois agricultural economist, says growers should measure their own situation when deciding on inputs and crop sales. But overall, “pricing inputs and grains at multiple points in time will reduce risk,” he says. “I would suggest beginning pricing a crop over roughly the same period as inputs are priced. This will allow price averaging over a fairly long period.”
Ed Usset, University of Minnesota Extension economist, adds, “The best risk management is not just price risk management, but margin management. And margin management involves managing input and output prices.”