How can I sell more new-crop soybeans when it's more than 100° outside again today and my crop is almost shot?” asked a frustrated, nervous South Dakota soybean farmer.
As temperatures went up in the western Corn Belt, so did emotions in the soybean market — not only in the pits at the Chicago Board of Trade, but also in farm offices throughout the nation.
Soybean farmers and livestock feeders had another challenging year as soybean prices rallied more than $1/bu. and soybean meal prices soared by $40/ton. In this environment having a disciplined yet flexible marketing plan is important.
Our current analysis of the November soybean chart is to watch for major support at $5.60 and resistance at $5.95 and then $6.10. As a firm, we have 20% of the new crop sold ahead. And if the rally continues, we'll make additional scale-up sales right into harvest. For new-crop corn sales, we're at 40%, as well. If the market rallies right into harvest, scale up on 2003 sales. Don't miss making some 2004 sales as well.
There are five keys in how to handle your emotions and the grain markets when volatility and opportunity increase.
Farmers with crop insurance can handle volatile markets and sleep nights when they know they have a revenue guarantee locked in. We don't sell crop insurance, but in the last two years have seen how farmers who have some type of revenue insurance are more confident in their approach to new-crop marketing. As one Iowa customer says, “I've paid the premium so now I can sell new crop on these weather-scare rallies and let the insurance company worry about it.”
Sell in increments. The idea of spreading your risk and making five sales of 20%, or 10 sales of 10%, made good sense again this year. The August and early September sales were higher than the May/June sales, and odds are the average selling price will again look good by the time harvest is wrapped up. Having some bushels to sell into the late summer rally and having the discipline to make those sales is one of your profit keys.
Be aware of your relative price level. The government program offers you a floor you have to take and some logical price levels to sell into when the market rallies. In late July 2003 the nationwide USDA crop report showed corn and soybean crop ratings at a whopping 75% good to excellent. In late July new-crop bids were below loan and it looked like prices could keep trending lower. However, when prices drop below loan, you have no risk in waiting. When new-crop prices are below loan, don't sell regardless of how bearish the outlook is.
Farmers who sold at or below loan made a big financial and marketing mistake. Your target to make new-crop sales should be at least 30-40¢ over your county loan so you get the full benefit of the farm program in the cash market.
Use all of your marketing alternatives. Producers who made incremental sales and then also used a combination of hedges, forward contracts and puts were able to keep selling into the market as futures rocked higher. If you limit how you sell your grain to just cash sales or cash contracts, you're going to miss a lot of pricing and basis opportunities. Go slow using these new tools, but make sure you check with your broker or elevator manager on what's available.
Consider using a managed grain contract on part of your production. A growing number of farmers are getting more comfortable hiring someone else to pull the trigger on part of their production. You simply pick out the number of bushels you want to sell, delivery location, the month to deliver and turn the pricing over to a consultant who makes the pricing decisions for you. Make sure you read and understand the contract; and if possible diversify who makes those pricing decisions.
Alan Kluis is executive vice president of Northstar Commodity Investment Co. If you have marketing questions or want more information, write: Northstar, 1000 Piper Jaffray Plaza, 444 Cedar St., St. Paul, MN 55101; call: 800-345-7692 or e-mail: aginvestor@agmotion.com.