When do I start selling? How much should I book? Do I use futures, options or forward contracts?
Those are frequent questions most growers eager to sell their corn or soybeans ask, especially in a challenging marketing year like 2002.
While growers wondered about loan rates, target prices and other aspects of the new Farm Bill, grain prices remained stagnant after late 2001 and through much of June when weather scares and tighter world stocks squeezed prices higher.
For Lonnie Price of Ainsworth, NE, '02 corn marketing got started several months later than he wanted. “This was the first time in 10 years that we didn't have at least one-third of the crop sold before we planted,” says Price, who farms pivot- and furrow-irrigated corn and beans with his son, Kevin, in northern Nebraska. “There weren't any marketing opportunities because prices stayed low.”
Jim Arens of Ainsworth also swayed from his normal strategy of marketing corn early.
“I've lined up storage because I'm bullish on corn (for the '02 crop year),” says Arens, who also depends on irrigation. “I looked at the world situation and it showed me that with South America's poor crop (and lower production in other countries), the U.S. was the only country with substantial corn to sell. I'm very optimistic about corn prices.”
Another grower, David Jacobitz, who farms with his three brothers near Kenesaw, NE, took a different marketing approach. He'd become frustrated doing his own marketing and turned it over to a marketing service.
“Our plan has been to sell early and defend against (potential hedge-caused losses from) any rally,” says Jacobitz, whose operation includes white food corn, popcorn and soybeans. His '02 marketing started in 2001.
“We sold $2.44 December '02 corn futures in December '01,” he says. “We later sold $2 December puts for a 7¢ premium to try to take some additional money out of the market.”
Mid-summer weather rallies nearly always create more marketing moves. That was the case for all three growers.
Jacobitz, working with his marketing service, extended his corn marketing when December futures hit $2.50 about July 1. “We contracted white corn at $2.52 cash, for March '03 delivery,” he says. He then got out of his December $2.44 futures. Any loss was offset by gains from September $2.10 call options purchased for 15¢ in mid-June. He was looking to sell more corn at those attractive $2.50 levels or higher.
Price and Arens, both who worked with Pride Grain in Long Pine, NE, a refurbished independent country elevator that reopened in 1999, were waiting on a 20¢ improvement in their 45-50¢ corn basis before extending their marketing. But the late June, early-July price rally also caused some action.
Price sold his first corn of the year by forward contracting 20% of his crop to the elevator when futures shot up. With a slightly narrowed minus-40¢ basis, he sold at $2.05 and $2.10 cash. He had orders in place to move additional corn if futures topped $2.55. He was also looking at a put-call spread.
“When the market looks a little top-heavy, we'll look to buy out-of-the-money puts in the $2.40 range and sell calls in the $2.60 range to provide good floor protection with some upside potential,” he says.
Arens was also ready to price about 25% of his crop at $2.10 cash. “But I still think prices are going up and our basis will narrow,” he notes. “This was the driest June on record for this area. With the dry pastures, they have to feed cattle something.”
Soybean marketing did come earlier for Price. In the spring he bought $4.80 November '02 calls and sold $5.20 November '02 puts. “My net cost for the move was about 3¢,” he says. Additional moves in late June saw him forward contract beans with the elevator at about $4.55, when futures hit $5.10. He also bought $5 puts for 27¢ and sold $5.20 calls for 31¢ to create another window. He bought November futures at $5.12. These moves provided solid protection against a market drop and loss.
Jacobitz used straight soybean futures and call option purchases. He had $4.70 November futures in place early on and he protected that move with $4.60 November call options purchases.
For Arens, the $5-plus soybean futures still weren't attractive enough. His bull attitude is in line with some recent analysis from Bob Wisner, Iowa State University grain marketing specialist. He forecast increased volatility for both corn and soybean markets this summer and even the fall because of a likely continued decline in stocks of both crops in the year ahead. In addition, a short wheat crop created an even greater chance for roller-coaster prices.
He says additional opportunities for better corn prices come from crop shortfalls elsewhere. “South American corn exports for the year ahead are indicated to be more than 200 million bu below last season,” says Wisner. “Production in both Brazil and Argentina dropped sharply this spring. These two countries normally would be the main alternative suppliers of corn for world markets during the summer and fall. Lower production there creates positive opportunities for U.S. corn exports.”
Price concludes that no matter how long a grower waits, there is virtually always a good time to take additional return from solid marketing. “Every farmer has the opportunity to add 10% to his corn or soybean prices,” he says. “I think it's easier to make 10% more net profit from marketing than 10% more in yields.”