In a move not often seen, old-crop soybean futures have caught fire and boosted new-crop prices. The result is a strong pricing opportunity for farmers looking for some early sales, says a Chicago marketing analyst.
Mark Gold, analyst with Third Party Ag Marketing, says November 2014 soybean futures brought smiles to many when the contract bumped $11.80 per bushel on Thursday.
“The key thing is we have a nice rally in the old-crop (March 2014), up more than $1 per bushel,” Gold says. “It has helped drag the new-crop up to relatively acceptable levels. We went from $10.90 on the new-crop to $11.80.
“Anytime the old-crop drags the new-crop up, that’s a great marketing opportunity for the new-crop. We believe it’s a great opportunity to get new-crop beans, along with corn and wheat sold. That’s because there is still an awful lot of risk out there.”
Gold says a put options strategy may give growers less worries than straight futures. Futures create the potential for margin calls. “Every year we see more and more farmers who don’t want to go through the ups and downs of the market,” he says. “We want to make sure those growers don’t use marginal positions. We use long options combined with cash sales as an effective marketing strategy.”
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Other marketing considerations involve Revenue Protection insurance. RP price levels have now been set, based on the average November 2014 soybean futures price for the month of February. It is about $11.36 per bushel, far below the $12.80-plus price for 2013.
“A lot of farmers believe that with revenue insurance, if the price goes down they are protected on a lower price. That’s not quite true,” Gold says. “What is true is if you have revenue insurance and you have lower markets, it will pay very well, if you don’t grow the crop.
“But if you grow the crop and come up with APH (average production history yields) or above APH on your farm, don’t expect that insurance policy to pay off.”
For 2013, some growers had a full APH yield but made few sales. For example, “they had revenue insurance on corn at $5.65 per bushel,” Gold says, but the price was $4.50 at harvest.
“They picked up $21 per acre from insurance, but lost a lot of money on the cash price. We want growers to combine revenue insurance with good marketing strategy.”