Early marketing is the norm for Jim Spahr and Jason Reiners. So while they were bringing in their 2005 crop, 2006 had long been on their minds.

Getting a portion of the corn or soybean crop marketed far ahead of harvest is something most growers should consider if the price is right, says Alan May, South Dakota State University (SDSU) Extension economist.

“With carryover supplies of corn expected to be more than 2 billion bushels, producers should plan to make some sales sometime from January to May,” says May.

For Spahr, Nov. 2006 soybean futures that approach the $6.50 level will give him an itchy trigger finger.

“Any time I can get more than $5.50 — my breakeven point for soybeans — I strongly look at getting some sold,” says Spahr, who farms a soybean/seed corn rotation at Seward, NE. “Something in the $6.50 futures range is a good place to start.”

Reiners has a 50-50 corn/soybean operation in Juniata, NE. He begins pondering sales of the next year's crop early. “I follow December futures (for the following year) when it comes on,” says Reiners, who even sold some 2006 corn in 2004.

“We cash forward contracted about 10% of our '06 corn for $2.30 in '04,” he says. “That was based on $2.55 December futures and a 25¢-under basis. I will be marketing more of the new-crop corn after the first of the year if I can get some $2.50 put options secured.”

Reiners also has offers out for $6 soybeans for 2006 and will lock them in as soon as that price is available.

Spahr and Reiners have marketing plans that consider their production costs and other inputs. Their plans can change with fluctuations in the corn and soybean market. Such plans are advised by SDSU's May.

“Write a marketing plan that evaluates your production levels and risk, your financial situation and establishes acceptable price targets that are based on your risk and an understanding of seasonal price patterns,” he says. “In addition, the marketing plan should incorporate a sound fundamental outlook of the market in question along with the strategies you're willing to use.”

He says choosing the right marketing tools (futures, options or forward contacts) will depend on several factors. “The most important factor in deciding what strategy to employ would be basis,” says May. “In regions with historically wide basis levels on corn at harvest time, it will be important to weigh the certainty of a locked-in price and basis with a cash forward contract against the basis risk taken with a futures or options strategy.

“The basis bid offered through a cash forward contract should be evaluated for its fairness in terms of historical basis patterns and outlook expectations of the producer — his or her bullish or bearish attitudes about price direction for the fall of '06,” May says. “Option strategies should be evaluated with basis risk and premium cost in mind.”

May also encourages growers to consider early marketing and the use of crop revenue insurance. “Crop revenue insurance products are an important tool in forward pricing,” he says. “Because those insurance products protect revenue, they are much more valuable in supporting a marketing plan that is employed to make sales well in advance of harvest.”

The SDSU economics Web site http://econ.sdstate.edu offers further information on early marketing and crop revenue insurance. The site's risk calculator section illustrates how the crop revenue products and a forward pricing strategy can be used in tandem to take advantage of prices that may likely end up being higher early in the year compared to harvest.

“No matter what strategy is employed in either corn or soybeans, producers must understand their production risk and how crop insurance, particularly the revenue products, can aid them in making sales prior to harvest,” says May.

Spahr says the early market virtually always pays. “In eight out of 10 years, I see profits from my trades,” he says. “I consider the farm a manufacturing plant. I want to get products marketed before they are produced or planted.”

Try to learn from your mistakes in marketing, adds Reiners. “When there are profitable opportunities, I study them hard and make a decision I can live with,” he says.

May stresses that growers need to fully understand their production costs and be able to evaluate the market's ability to cover those costs plus profit. “They really need to fully evaluate basis bids and understand historical basis patterns for their local or regional area to determine how much basis risk they may have,” he says.

Since no one can accurately predict what the price of corn or soybeans will be at harvest, any pricing decision made prior to that time must be made with the knowledge that once a price is established, it will change, says May.

“What impact any price change (higher or lower) will have on the final net price for corn or soybeans should be acknowledged and understood prior to making an advance sale,” he says. “If you sell corn or soybeans in advance of harvest, you must make that decision based on the fact that you have to live with that price no matter what happens to prices after the sale is made.”