“I sell early and I sell often.” Ken Westrich's philosophy paid off with high-priced corn and soybean sales for the 2008 crop. It helped him get a leg up on super sales for 2009 and even 2010.
Early selling can enable growers to manage their risk for current- or future-year crops. And in these volatile markets, attractive early selling opportunities can emerge at any time, yet disappear just as quickly, says Dwight Sanders, agricultural economist at Southern Illinois University in Carbondale.
Westrich farms a little south of St. Louis near Scott City, MO. His proximity to the Mississippi River adds to his marketing capabilities. But like corn and soybean prices, “river basis” has been extremely volatile.
“Marketing has been more difficult the past year or two,” says Westrich, who's worked closely with a Missouri Extension marketing council over the years to promote marketing education. “I've learned to use the tools available to get sales made early.”
His crop rotation is corn, and soybeans double-cropped with wheat. “I've had a brokerage account for a long time, but most recent sales have been through forward contracts with elevators,” he says. “The sales have been based on futures prices, but not through actual futures contracts.”
HE PULLED THE trigger early on both corn and soybean sales for 2009 when prices were approaching their eventual peak last summer, about the same time he was winding down much of his 2008 marketing.
“I got 10,000 bu. of 2009 corn contracted for $6.15/bu.,” says Westrich, whose sales were made through local elevators and river grain terminals. “That was based on December 2009 futures with an open basis. I can set the basis where or when I want (before delivery). I also got the same amount of 2010 corn sold at $6.25.”
For soybeans, he managed to lock in a 2009 price of $12.54/bu. for 5,000 bu. About 15,000 bu. of double-cropped wheat was booked at $7.80/bu. for 2009.
“Of course, now I wish I had gotten more of all those crops marketed,” he says.
His 2008 sales also started early — in fall 2007. Sales for corn ranged from $5.50 to close to $8/bu. “There were several winter-delay contracts (for early 2009 delivery) that averaged $6.27,” he says.
Westrich says early sales, even though they generate a profit, are sometimes made too soon before the market rallies. “Sometimes it can bite you in the butt,” he laughs. He admits he would have probably made a greater number of distant 2009 sales if elevators hadn't cut back on how far out they would go. The prices were sure there.
For example, July 2009 soybeans were trading between $13 and $16 from May through late July last year. November 2009 beans were in a similar range. July 2009 corn was $6-7+ from May through late July, and again above $6 for several weeks in August and September. December 2009 corn had a range of $6.50-8/bu. from the spring through late July, and over $6 again a few weeks in August in September.
THOSE PRICES CLOSELY followed the 2008 contracts for both crops. Sanders says more growers would have liked to have gotten additional 2008 corn and beans sold, but were held back by elevators stuck with huge margin requirements. However, that probably didn't have much impact on 2009 contracting.
“All of the price run-ups were primarily done by June,” he says. “Most growers were worried about 2008 sales, and there probably weren't too many thinking about much for 2009.”
Sanders says there have been some additional marketing opportunities for getting some 2009 corn and soybeans sold.
“December 2009 corn has been about $4.25 (in late 2008),” he says. “With the right input costs, that's still a pretty good price. It doesn't look as great as $8 corn, but it's sure better than what we've seen over the last 10 years.
“The same goes for soybeans at about $8 for November. That's not in the $14-16 range, but it sure beats $5,” he adds.
He says sales should probably be limited to not over 15-20% of corn or bean production early on because of the potential for seasonal market swings upward.
SANDERS STRESSES THAT corn and soybean prices will likely continue to follow crude oil and the stock market. “Crude oil dropped below $50/barrel in November,” he says. “That's about a 70% drop off. So don't think that corn futures can't go to $2.75 — $4.25 might be a very good price.”
Sanders says growers should realize the urgency of knowing their input costs before making extensive sales. “In this economic environment, I wouldn't do anything until I had a handle on my input costs,” he says. “There is just too much uncertainty. Wholesale fertilizer prices have come down and that should eventually get to farmers. And diesel is certainly a lot lower. But what growers have locked up may be different.”
Crop and livestock marketing analysts see mounds of volatility for 2009. Randy Blach, vice president at Cattle-Fax in Denver, watches grain trends as much as he does those for cattle. “I don't believe the volatility is done in the corn market,” he says.
Ken Margherio, a broker/analyst for Oakland Futures Management, Inc. in St. Louis, agrees with Sanders in that even though grain supplies are tight, outside pressure from crude oil and other markets likely trump the supply and demand fundamentals.
“If you could eliminate outside markets from the equation, world supply and demand for corn and beans would give you a more bullish environment,” says Margherio. “So I don't know what to advise people in regards to a selling price.”
He says he's “positive on agriculture, when the overall economy comes back.”
You can't get negative on the ag side. Under better financial circumstances, $5 corn and $12 beans are possible.
“If I were a farmer and had the storage space, I'd be content to sit on this stuff,” says Margherio.
Westrich makes most of his marketing decisions based on information he picks up from marketing newsletters. He has never been a fan of corn or soybean options trading because of the premiums involved. Sanders says the volatility of the markets will probably keep the cost of using options higher, even though there could be some good marketing opportunities using call options to capture upswings in the market.