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Sales in a Risky Year

July 29, 2008
By: John Russnogle, Top Producer Guest Editor

The markets and many rivers hit new highs this summer. The timing of the rivers' crest was predictable, but the markets were far less certain.

Nebraskan Jeff Shaner watched the simultaneous bounty and disaster as the Missouri River invaded the fields he farms with his father, Neale, at Ft. Calhoun, just north of Omaha. He finished replanting corn June 18, and got started replanting soybeans, figuring 100 acres wouldn't grow a crop in 2008. Sadly, with about 10% of his acres under water, many Iowa and Illinois farmers with greater losses would consider him lucky.

The real irony: on average, Shaner's crop is just fine. Cool, wet early summer weather produced a stress-free growing environment on his well-drained higher soils. Increased yields there will likely off-set what he lost to flooding. Yield goals of an average 160-bu. corn and 40-bu. beans still seemed practical post-flood, even though in mid-June his corn was two weeks behind normal and soybeans nearly a month.

Early sales. It's a crop that Shaner began to sell in 2006. "I sold some corn then on a hedged-to-arrive contract at $2.92. Probably less than 5% of the crop," he says. "Then in December 2007, I sold another 5% or 10% at $4.50."

In April 2008, as markets surged, Shaner fenced his price on remaining corn with a $5.50 put and a $7 call. "The bean market was tanking right then, so I just bought puts at $11.40.

"At the time, it looked like the corn market could go back to $3 quickly," he says. But as markets kept seeking the top, he liquidated his positions. The position cost 80¢ for the soybean puts and 61¢ for the corn fence.

With his crop finally in, Shaner put his sales on hold. "Any price north of $3 makes us money on corn," he says. "And I think I'm smart enough to figure out a way to sell before it goes back to $5. I may be naïve, but I really don't see any reason for the market to drop at this point."

Shaner doesn't plan to sell any 2009 or 2010 crops soon, either. "There's really no reward for selling right now," he says. "Input costs are all going up. If I can't forward price inputs, why forward price the crop?"

Cash sales. Aurora, Neb., farmer Brian Wall locked in profits with forward cash contracts. Wall, who farms with his father, Dennis, and brother, Kevin, started selling 2008 crop in the fall of 2006 at $3. "That was 90¢ above prices at the time and looked like a heck of a price."

Wall's marketing plan calls for selling grain in 5,000-bu. increments every time prices rise 50¢ to $1. "Every sale today will be a mistake tomorrow, if the market goes up," he says. "I keep making mistakes. But, at $5, it sure looked like a mistake to do nothing." By late June, Wall's top corn sale was a cash contract at his local co-op for $7.50.

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FEATURED IN: Top Producer - Summer 2008

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