“This is the first year I can make money growing poverty beans,” said the young farmer from Tennessee at a marketing seminar at the Commodity Classic in Tampa, FL. In the next sentence he asked this key question: “I forward sold about 30 bu./acre way below $7/bu. — what do I do now?”
I thought about this question and indicated that I'd get back to him with some alternatives. My response to him is the basis for this month's column.
First: Think positively about soybean profit potential in 2007 and 2008. I've worked as a commodity broker and adviser for over 30 years, and usually refer to soybeans as the gold that grows. This is the first time I'd ever heard someone call soybeans “poverty beans.”
I guess it all depends on your perspective. With November 2007 and 2008 soybean futures trading above $8, everyone should have excellent profit potential growing soybeans the next two years.
Second: Spread out your marketing decisions. By selling 30 bu./acre ahead all on the same day, he doesn't have as much flexibility as if he'd made four to five sales on a scale-up basis. With the increased volatility that funds have created in the market you need to make more sales using smaller increments.
Third: Look at all of your alternatives. Producers can get new-crop price protection using cash forward contracts, hedges, hedge to arrive with an elevator or puts and options. Using hedges and/or puts will take more money, more management and will require you to spend more time working on your marketing. This is time that can pay huge dividends.
For 2006 cash soybeans: If you're holding 2006 cash soybeans, have a disciplined scale-up program in place to make cash sales in the April-June time period. Remember the news will always be bullish at the top.
For 2007 new-crop soybeans: Based on earlier recommendations, current KluisNews subscribers have 50% of the new-crop 2007 soybeans hedged ahead into the November 2007 futures at an average of $7.87/bu. This is a summary of our new-crop 2007 sales:
The initial 10% sale was made when the November 2007 futures rallied to $7.40.
The target to get an additional 20% sold was hit last month when November soybean futures rallied up to $7.78.
The last 20% sale was made when November futures rallied up to $8.20 bringing sales to 50%.
Odds are good that we'll recommend 10% at $8.60 and an additional 10-20% at $8.90.
If you're not 50% forward sold and new-crop November futures are still above $8, consider getting to that level — now. Once you've hedged ahead the maximum 2007 bushels that you are comfortable selling, then get additional price protection by purchasing November 2007 soybean puts.
The put options that we recommend buying will depend on the November soybean futures price and the amount of volatility in the options market the week that you buy those puts.
By hedging 40-60% of the 2007 soybean crop and buying puts on the last 40-60% you will have good or great profits growing soybeans — not poverty beans — in 2007.
For those who bought the Kluis Calendars, you can get the Twelve Years of Historic Corn — high-low data by going to www.kluisnews.com and clicking on the calendar update button. We've also posted the Wednesday closes you need back to Jan. 3, 2007, to keep your basis charts updated.
Alan Kluis is the president of Kluis Commodities LLC, based in the Minneapolis Grain Exchange, Minneapolis, MN. You can contact him at alan@kluisnews.com or call toll free 888-345-2855.