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Not 2008 again
It was a situation even the best prognosticators couldn’t predict – the massive run-up in corn, soybean and other commodity prices in 2008. Corn burst through $7/bu. Beans exploded past $16.
Grain handlers were caught sharply off guard and faced enormous margin calls on HTA and other distant grain contracts. Soon afterward, many wouldn’t contract for grain more than 60, or even 30 days out. Farmers couldn’t take advantage of high prices and backed away from using futures or options themselves for fear of massive margin calls.
But even with recent price increases and volatility, 2011 is seeing elevators on firmer ground with their lenders and willing to provide more marketing flexibility, says Chris Hurt, Purdue University Extension economist.
“What elevators went through in 2008 is not as extreme this year. Elevator managers know to be cautious. So do lenders, who set guidelines on them.”
Art Barnaby, Kansas State University Extension economist says some grain handles are still limiting the amount of multi-year marketing allowed, “but it’s not widespread.”
Barnaby says the biggest mistake growers make in marketing is failing to make sales. “Not making a decision is a problem with some,” he says. “And doing nothing can hurt them.”
Hurt says growers need to get off the fence in marketing. “If you’re going to win in marketing, you have to put your chips down before you know the outcome. You can’t wait to know you have 180-bu. corn,” he says.
“Growers need to set price objectives. There are too many who market when the price goes down than when it goes up. Many people get locked into facing a big decision. But if you see a chance for a profit, make some sales. Turn a big decision into 10 little decisions spread over the year.”
Hitting the top 10% of a market for year is a good goal, but an unrealistic one, Hurt says. “Try to have overall sales that are even 2-5% over the average,” he concludes. “That should produce some profits in most years.”