Higher Corn and Soybean Prices Necessitate a Marketing Plan

New-crop prices are providing good incentives for 2011 plantings, and the competition among the crops is strong, says Chad Hart, Iowa State University Extension economist. Corn and soybeans are not the only crops with high prices. “We will likely see additional price strength as this competition for area heats up over the next couple of months. Overall, 2011 is shaping up to be a good year for crop returns, as long as we can produce a crop. Prices are stronger than costs (although costs are rising). In many ways, it reminds me of 2007 and 2008. Looking forward, my concern is that 2012 may look like 2009 when costs caught up to prices and crop margins were squeezed.”

Prices are highand all the advice points to a continued effort by the market to buy more corn and bean acres before planting. University of Missouri Extension Marketing/Policy Associate Melvin Breesreminds producers to have a marketing plan. Here are four of his suggestions:

• Brees plan 1: Set upside and downside price objectives to target sales. Setting upside price objectives is difficult in an uptrend, but with prices at historically high levels targeting a higher price is almost sure to lock-in a “good” sale. Downside price objectives are easier to target, but difficult to follow through on because it requires selling at a lower price. The downside objective can be the breaking of the chart trend line or technical chart support levels or simply a price objective below current prices that will trigger a sale before prices decline further.
• Brees plan 2: Use a “trailing stop” to trigger sales. This sets downside price objectives. Pick a price objective below current prices to trigger sales or “stop” you out of the market. If prices move higher, increase the downside price objective in order to “trail” the market higher. As long as prices move higher, no sales are made and the downside price objective continues to get higher. If the market reverses, it triggers your latest or highest downside price objective.
• Brees plan 3: Use options. Yes, option premiums make them expensive to use. But they are flexible and can be used to protect or “insure” very profitable prices while still allowing you to sell the cash grain at higher prices if the uptrend continues. Add option profits to net sales.
• Brees plan 4: If nothing else, consider spreading the sale of your grain over a period of time. Prices are at historically high levels and offer good profits. Selling some now and then adding to sales if prices move higher results in an increasingly higher average price.