How can I make any profit with $1.20 corn and $4 soybeans?" That question, from a young farmer in northern Iowa, was the first one asked at a seminar in late July.
Record yields and large old-crop supplies have combined to drop cash corn and soybean prices sharply lower. If producers only look at the current cash prices, it can be very frustrating; however, these low prices can be a positive factor. Between now and the end of October, lower prices can actually enhance new-crop profitability if you make the right merchandising decisions.
To take advantage of the current market opportunity, you'll need to store as much of your crop as you can until next summer. Even if you just store the crop until January, you can get many of the carrying charge benefits.
For most corn and soybean producers, we see three positive factors this year:
- There is a large yield potential. With a potential near-record crop in most areas, many Midwestern producers will have a record number of bushels to work with.
- The current farm program will offer huge loan deficiency payments (LDPs) this fall. These will offset the current low cash corn and soybean prices.
- The market has built a large carrying charge into the futures and cash markets into next spring and summer.
By reviewing the corn and soybean LDP worksheets, you can see that the best profit combination as we enter September and October is to take a large LDP payment or marketing gain (using Form CCC-697), then price the crop ahead for March, June or July 2001 delivery.
In summary, the combination of a large yield, large LDP and large carrying charge should give producers the dollars per acre that they need, even if the dollars per bushel are less than what was budgeted. If you're one of the producers who ignored the drought hype last spring and sold some new-crop corn and soybeans ahead, then these lower prices and large LDPs are creating a very profitable year.
At NorthStar, we've written a special report: How to Maximize Loan Deficiency Payments. The most efficient way to get this report is at our Web site. You can also enter your numbers into our LDP calculator, which will help you estimate both your current and future LDPs.
You can access this report by going to www.northstarcommodity.com. Look for our LDP Information link on the left-hand side. You'll need to register to use the site. The information will be readily available until Sept. 9. We also have many of the forms you may need and our current analysis of when to lock in the county posted price.
If you don't have Web access, please write to NorthStar Commodity, P.O. Box 15086, Minneapolis, MN 55415-0086 and ask for the special LDP report.