I forward-sold soybeans the last two springs and I'm not going to make that mistake again,” said a frustrated farmer at a recent Northstar seminar in southern Minnesota.
The soybean market has been in a rally mode since the 30-year cyclical lows posted in 1999. Here are three major market factors to consider when making new-crop soybean marketing decisions:
Yield prospects: In late 2003 soybean prices surged higher in late summer and into harvest as dry weather and aphid problems dropped yields to one of the lowest levels in the last decade. The U.S. Soybean Yield Trend Chart (below) shows that the rapid yield increase of the 1980s and 1990s has slowed, but odds still favor higher yields over the long term. The odds of another below trend-line yield in 2004 are very remote.
Competitive supplies: The U.S. will face increased competition from South American soybeans starting in March and continuing through the end of the year. In addition, soybean meal has tough competition from lower-priced meat and bone meal and increasing supplies of dry distillers' grain. When prices are high for an extended period of time, end users will switch to lower-price alternatives.
Relative price level: Selling new-crop soybeans ahead the last two years at $5.40-5.80 hasn't been the right move at harvest when November soybean futures have been at $6-7.50/bu. Look at the price level now. November 2004 soybean futures are at some of the highest off-the-combine prices we've had in the last decade. Selling ahead at $6.70-7.20 on part of your 2004 crop is likely to look smart by this fall.
We all strive to be the best at what we do. But to be the best marketers, growers need to follow at least three essential principles to get the most from what their crops have yielded. Those rules are:
CONSISTENCY: Forward-pricing new-crop corn and soybeans will work 15 out of 20 years. Producers who consistently forward-price corn and soybeans over 10-20 years will make more profit than those who sell when they need the money or run out of room.
DISCIPLINE: Your marketing should be based on a spread sheet, profit-based decision-making process — as opposed to using someone's crystal-ball price forecasts.
At the current new-crop corn and soybean profit levels, selling some ahead is the right decision. It's really frustrating to sell ahead on the wrong years, so stay at it.
DIVERSIFICATION: In these volatile markets, producers should consider diversifying their marketing portfolios to reduce stress, improve results and spread out risk.
I suggest this three-part portfolio diversification:
First, a portion of your grain should be sold based on strict profit objectives.
Second, another portion should be put into a managed grain marketing plan utilizing an adviser who will get grain sold into the elevator. You choose the delivery point and marketing window.
Third, You can sell the final portion based on your own research and what you feel is right for your farm.
By putting 30-40% in each part of this marketing portfolio you should increase your profits.
Alan Kluis is executive vice president of Northstar Commodity Investment Co. If you have marketing questions or want more information, write: Northstar, 1000 Piper Jaffray Plaza, 444 Cedar St., St. Paul, MN 55101; call: 800-345-7692 or e-mail: aginvestor@agmotion.com.