Duane and Gail Witt use a variety of marketing tools to sell their crops. But cash contracts work best.
"Forward cash contracts have been our main selling strategy in recent years - and still are," says Duane. "Because basis is so wide and erratic here, futures seldom work for us. Right now (mid-January), the corn futures price is $2.18/bu, but we have to back that off by a 19-cent basis."
The Witt brothers farm western Iowa's loess hills near Beebeetown. Their 4,000 crop acres are evenly divided between corn and soybeans.
Among their marketing tools, they also make use of 300,000 bu of on-farm storage.
The Witts protect production risk with crop insurance. They start watching for contracting opportunities early in the year.
"We start in March or earlier," explains Duane. "If we can lock in $2.25 corn, we'll sell some well ahead of planting. We like to have 30% of the crop sold by the time planting is over.
"This year, we may put a floor under the price with options. Right now the premium isn't too bad," he adds. "For the past couple of years our earliest sales have been the best. Last year we sold some corn for October delivery at $2.68/bu. That was the best we did all year."
The Witts often put sell orders in at a certain price, with either a firm offer to sell or a request that the contractor call when the price hits their target.
"For instance," says Gail, "we had a sell order in at $3.08 for old-crop white corn for February delivery. We're delivering on that contract now."
After planting, the Witts watch the market for further selling opportunities.
"We use a scale-up marketing strategy; we sell in 10-cent price increase increments," says Duane. "We sometimes can't get what we want, but there usually are midyear weather markets that we can take advantage of."
And it doesn't so much matter what the weather actually does, as long as it does something the forecasters didn't expect, Gail says.
For example, two years ago dry weather hit early in the growing season, and the soybean price started moving upward. The Witts put in a $7/bu sell order.
"We hit that trigger in early July," Gail recalls. "Right after that, we started getting widespread rains, and the bean price never got back to that level the rest of the year."
The Witts don't sell as many beans as corn ahead of time.
"We don't store many beans and that limits the tools we can use," says Duane. "Last fall we sealed most of our soybeans under price-support loan."
With 300,000 bu of storage, the Witts can be more flexible with corn marketing. Part of their strategy is to have forward contracts at harvest for all of the corn they can't store.
"We start harvesting when the moisture content is pretty high," says Duane. "We have the capacity to dry a lot of corn quickly. And, we have been able to negotiate favorable moisture discounts with buyers. Our corn generally has a heavy test weight."
When a buyer needs "super dry" corn badly enough to offer a good premium, the Witts have dried corn to below 14% moisture.
"But we don't ordinarily dry corn below 14%, unless the premium more than pays the extra costs of drying and shrinkage," says Gail.
White corn is a growing specialty crop on Witt acres. Last year, they planted about 10% of their corn acres to white hybrids. This spring, they're planting 500 acres, about 25% of their corn acreage.
"Until the past few years, white corn was not a big crop here - we considered dropping it," says Gail. "Then hybrids came on with less yield lag. Now white corn is the best specialty crop we have going. In fact, premiums have already dropped for the 1999 crop, reflecting the fact that a lot more white corn is being planted."
The Witt brothers believe in looking for profitable selling opportunities wherever they find them. As part of that vigil, basis-watching is a year-round activity.
"Basis has probably made more impact on our marketing than any other single thing," says Gail. "Last fall, the basis on corn widened to 40 cents/bu, which pretty well eliminated futures hedges from consideration."
Even options aren't very good protection when basis is that wide, adds Duane. "If we could sell basis at less than 15 cents/bu, we'd add basis contracts to our marketing mix."
With Cargill's ethanol plant in operation at Blair, NE, and Bunge's soybean processing plant coming on stream in Council Bluffs, IA, the Witts will have more marketing choices for both corn and soybeans.
"The alcohol plant probably took a nickel off corn basis in this region," says Duane. "And the soybean plant should narrow the basis for beans."
In the meantime, the Witts will make the most of the selling tools they do have. "We don't cry when we make a sale and then see the price go up," Duane says. "Still, it's hard to be unemotional when it's your crop."