Sell beans in winter
Corn sales more than a year in advance are common in Pierce’s marketing plan, and he usually starts making bean sales in the winter. “I sold 20% of my expected corn crop last August at $6.50,” he says, adding that he tries to have 50-75% of corn and beans sold ahead of harvest. “About 10% was in HTAs to the ethanol plant and 10% was off a futures position.
“With uncertain soil moisture conditions, I will probably use more futures this season,” he says. “If the market is offering a good profit per acre, we will sell up to a year ahead.”
Based on typical 2013 Corn Belt corn and soybean production budgets, Johnson recommends growers sell up to 30% of their corn and beans early. Early sale prices remain strong, even though cash corn prices of $6.80-8 are projected for the marketing year, based on carryover stocks of only 602 million bushels, which is a 17-year low. USDA projects soybean prices in the $13.50-15 range, based largely on carryover stocks of 135 million bushels.
“We assumed a short 2012 crop would have a long tail with lower prices for the 2013 crop,” Johnson says, adding that strategies like Pierce’s give growers a leg up on new crop marketing.
A projection by University of Illinois’ farmdoc further illustrates good news for farmers on a typical Midwestern farm. The scenario is based on a fictional 1,200-acre farm, with average yields of 187 bu./acre for corn and 54 bu. for soybeans. About 120 acres are owned, 360 are share-rented and 720 acres cash rented.
These projections show profit is there for a normal year and harvest-time delivery, with the profit depending on price levels:
- For $5.80 corn and $12.40 soybeans, projected net income is $291,000.
- For $5.40 corn and $11.80 soybeans, projected net income is $229,000.
- For $4.90 corn and $11.10 soybeans, projected net income is $153,000.
- For $4.50 corn and $10.50 soybeans, projected net income of $85,000.
With $5.80-$6 corn and $12.70-$13 beans, growers should have solid floor prices to make sales now, says Johnson. By securing base crop insurance prices close to those levels on up 85% of their acres, they can virtually hedge in a profit with less risk involved, he adds. “Making early sales from late winter into the summer months will help growers get a head start on covering cash-flow needs for next fall and winter, and avoid commercial storage costs.”