The corn market will be a different ball game next year, so put together a strategy now.
A good way to help put the headaches and miseries of your 2012 corn crop to rest is to start focusing on your 2013 crop. Joseph Vaclavik, president of Standard Grain in Chicago, Ill., says the most pressing marketing issue for farmers right now is the 2013 crop. "A bushel of corn that is only worth $6.40 seems pretty cheap these days. Unfortunately, that is near the current market price for corn delivered next fall."
Vaclavik says this year’s disastrous drought basically wrote out how to market corn this year, but that won’t likely be the case next year.
Big Corn Crop Ahead.
"Next year, producers could be fighting an uphill battle," Vaclavik says. "Again, corn acreage both here and abroad will be enormous. Every farming country in the world will try its hardest to overproduce grain."
Brock Schimbeno, a broker with Grain Hedge in Bozeman, Mont., says that because the corn market has seen extremely high prices in 2012, farmers should expect record acreage next year as producers try to capture favorable prices.
"The corn market will come under serious pressure if we see a large acreage number and expectations for even average growing conditions during the 2013 growing season," Schimbeno says. "For this reason, we think there is a real potential for a downturn in corn prices between now and the 2013 harvest season." Vaclavik agrees that if favorable growing weather prevails next year, it might take only one year for the corn market to return to lower prices.
Develop a Strategy.
The best marketing plan for selling your 2013 corn is one that allows you to be nimble, Schimbeno says. "We like a diversified approach to marketing the 2013 crop." He suggests combing hedge-to-arrive contracts, basis contracts, futures and options. This strategy will allow farmers room to change their mind or react to market conditions, while still lowering their exposure to price and liquidity risk.
For producers with available liquidity and experience with margin calls, Schimbeno suggests selling futures for December 2013 corn. "This will save the fee charged by elevators for hedge-to-arrive contracts and gives producers the ability to find their optimum cash market come harvest instead of being locked in to a single elevator."
Vaclavik recommends using a combination of option strategies and forward sales, if prices reach $6.50 on the futures board. "We wouldn’t mind having up to 20% of next year’s production priced in the coming weeks if our objective is hit." He says scaling into sales is a good strategy for producers. For example, he advises selling 2% of your total production every day that December 2013 corn trades above $6.50 for 10 days.
Schimbeno says the most important aspect of a diversified approach is that a solid average price per bushel should be achieved. "You may not sell at the highest prices of the year, but by selling in smaller increments and using different pricing tools, a respectable average price is possible," he says.
For More Information
Read Vaclavik's blog: Standard Grain.
- September 2012