Small Town News

Marketing important for success in 2010

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This winter I have discussed the 2010 outlook for corn and soybean production at several meetings. The "Operator's Cash Rent Worksheet" I prepare each year indicated a farmer could pay rents of $104 per acre for rent after paying projected input costs and receiving government payments. The worksheet assumed yields of 165 bushels for corn per acre at a $3.50 price and 47 bushels of soybeans per acre priced at $8.50. So how can farmers afford a higher rental payment? They need to lower input costs, receive a higher yield or a higher price.

Farmers are not able to set prices for their inputs other than receiving some volume discounts, so it is hard to lower input costs without sacrificing yields. Higher yields are a possibility as the yield trends are increasing across southern Minnesota, but we could also have weather issues and a shortage of moisture or hail that could limit yields, something a farmer has no control over. So even though higher yields are a good possibility they are not a sure thing. That leaves commodity prices.

Farmers who complete an "Acceptable Price Worksheet" for 2010 will find they need to receive $3.50 to $3.90 per bushel to cover expenses and family living after receiving government payments and $9.40 to $9.80 per bushel for soybeans. Farmers have opportunities to forward contract the sale of their grain in advance of harvest. But how early do you do this and how much? The high price for December 2010 corn futures was over $7.00 in Summer 2008 while the November 2010 soybean futures high was over $15.50. If you assume a 50 cents basis for corn and 80 cents for soybeans that relates to cash prices of $6.50 for corn and $14.70 for soybeans. Very little grain is ever sold at the high, in fact a majority is sold in the bottom third of the market. Current cash forward contracts bids for 2010 crop are around $3.30 for corn and $8.40 for soybeans.

A farmer should not forward contract more than their insured bushels protected by crop insurance usually at the 65% to 75% levels although some purchase up to 85% coverage. So a 75% of APH (Actual Production History) for the farms should be a good sales objective. But when do you actually set the price? To price the grain almost two years before it is planted is a tough decision. What will inputs cost be two years from today? What will my individual crop rotation be in 2010? These questions that will impact how many bushels you have available to forward contract. Another issue is what is the overall trend in the market? Are we at a new plateau or a high that will not be experienced again for several years or is the market moving even higher? Tough questions to answer.

This is where a marketing plan can have a major impact on farm profitability. Current prices offered do not cover your expenses, but if you had a plan in place back in 2008 for the 2010 crop and starting selling some of the crop then you would achieve a better price than is currently offered. Forward contracting grain at profitable levels is never a bad decision. Unfortunately for grain marketers who had been forward contracted consistently from year to year, they received a lower price for their 2007 and 2008 crops as the market started to rally in 2007 and peeked in the summer of 2008. After a record high price like we saw in 2008 it is again hard to forward contract at prices less than the previous year, but this is when forward contracting will pay off in a big way.

There have been opportunities in the past two years to lock in prices above 2010 breakevens and farmers who took advantage of these marketing opportunities will have the abilities to pay rents above $104 per acre and make a profit if yields are normal. While farmers who did not complete any forward contracting, as of today, will not be able to afford $104 rent per acre if commodity prices remain at or below current prices. The documents referenced here and many others can be found in the 2010 Farm Resource Guide. To order a copy give me a call at 507-372-3906 or email at bauxx003@umn.edu.



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© 2010 Sentinel Tribune Westbrook, Minnesota. All Rights Reserved. This content, including derivations, may not be stored or distributed in any manner, disseminated, published, broadcast, rewritten or reproduced without express, written consent from DAS.

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