I still get the age-old question at some marketing seminars: “Why work at marketing when my neighbor who hauls in and sells right off the combine seems to make as much money as I do?”
I'll be surprised if that question pops up this winter because this was a more typical year. Producers who initiated a new-crop marketing plan and aggressively sold part of the 2004 crop ahead will walk away with more profits than producers who sold right off the combine.
Let's look at an example. Two farmers each grew 100,000 bushels of corn and 50,000 bushels of soybeans.
Aggressive Albert liked the profits that were offered in the new crop corn market this spring.
He started selling ahead in Feb. 2004 when he hedged his first 10,000 bu. of new-crop corn by selling the Dec. 2004 CBOT corn futures at $2.78/bu.
This has always been a great place to start, so he continued scaling up his sales by selling another 10,000 bu. at $2.98, another sale of 10,000 bu. at $3.18 and 20,000 bu. at $3.28. This created an average sale price of $3.14/bu.
Aggressive Albert also had a disciplined plan for new-crop soybeans. The first 5,000-bu. hedge was placed when Nov. CBOT 2004 soybean futures hit $6.75 in late Jan. 2004; the next 5,000-bu. hedge was placed at $7.15; at $7.55 a third 5,000-bu. hedge was locked in; and at $7.95 he sold 10,000 bu. This gave him an average hedge price of $7.47 in the Nov. 2004 soybean futures.
Lazy Larry is upset that the farmers in Illinois got a larger LDP on corn than was available in Minnesota. The free storage on his soybeans ran out the first of October, so he sold 20,000 bushels of soybeans when the November futures rallied back to $5.50.
He has worked out a sell some — store some arrangement with his elevator for corn. If he sells 50,000 bu. at harvest the elevator will store the other 50,000 bu. until March 2005 for just 12¢/bu. He still hasn't sold any of his crops and he's hoping for weather problems in South America in 2005.
The reason to study markets and get involved with the MarketMaxx program is to learn more and earn more.
Marketing strategies may not work every year, but my statistics show that over a 20-year period producers who sell ahead will make more money than farmers who hope prices are high at harvest. This year they made a lot more.
The November soybean and December corn charts show huge price and profit swings that occurred in corn and soybean markets this year. For a producer with 50,000 bu. of soybeans, the difference in income and profits from the top one third to the bottom one third is $88,000. From the bottom one third to the average is substantial at $44,000.
The Dec. CBOT 2004 corn chart shows the major rally up from the Dec. 2003 low to the $3.41 high in early April 2004. From that high, prices fell sharply lower to the $2.10 low. This creates a huge $1.31 price swing from the contract high to the contract low. The midpoint of the upper one third of this price range is $3.21/bu. The average price works out to $2.75/bu., and the midpoint of the bottom one third of the price range is at $2.31/bu.
On 100,000 bu., the difference from the top one third to the bottom one third so far in 2004 is a huge $88,000 swing. From the bottom one third to the average, price is $44,000.
The 2004 Nov. CBOT soybean chart shows a major rally from the harvest low in October 2003 at $5.48 to the double top at $7.99 in March and April 2004. From that major high, prices fell sharply lower into September when futures fell to $5.35/bu. This creates a huge price swing of $2.64/bu. The midpoint of the upper one third of this price range is $7.55/bu. The average price is $6.67 and the midpoint of the bottom one third of this year's trading range is $5.79/bu.