Harvest is behind us and it’s time to take what we’ve learned from a challenging year and apply it to our 2013 game plan. No matter how confident you are of your position, you must have an exit plan if unexpected events occur. Case in point: 2012.
At this time, there are fundamental unknowns and we can only guess the outcome: Have the highest corn and soybean prices in history rationed near-term demand? Will corn acres expand or will attractive wheat and soybean prices pull acres away? How will the South American crop yield? Will the global economy start to rebound or will the U.S. fiscal dilemma spur another global recession?
All that can be done now is to assess the risk and decide your level of aggressiveness. I believe 2013 is not the year to be a big risk taker!
I don’t have a crystal ball, but I have common sense on my side after many years of working with farmers. Here’s my take on what lies ahead:
Producers should not go broke if an average yield corn crop can be produced for $5 and sold for $6.50 to $7 or if soybeans are produced for $10 and sold at $14.
Producers should use crop insurance, especially since the government pays a big part of the premium.
Producers could go broke if they have no plan for the pesky unknown events that seem to magically occur when finances are weakest.
A lot of profit potential is thrown away if basis and spreads are not understood well enough to help manage a cash position.
Remember, a bull needs to be fed every day, but a bear can be starved and still kill.
My market plan for 2013 includes selling as early as possible to lock up a "fair" return on investment. Sell in such a way that it does not negatively impact cash flow, yet allows you to improve your bottom line if an
unforeseen event should occur.
How? First, realize it is difficult to outguess the market. Second,
understand the terms of the marketplace. Third, protect your crop value; good marketing will be costly. Once knowledge is on your side, strive to keep your hedge account, which protects profit, separate from your speculation account.
Questions remain. All of this leads to more questions for the coming year.
Corn-on-corn acres have less yield potential than corn after soybeans. This is the year to shift, but be aware of the impact on inter- and intra-commodity spreads.
If double-crop soybean and wheat acres are increasing, shouldn’t wheat producers be actively hedging? If producers plan to shift, they need to get a floor on an average yield and buy crop insurance.
Since domestic stocks are tight for corn and soybeans, when do you decide to sell? Plan for early sales to lock up a solid return on investment. Some farmers like to achieve 30% to 35% as long as family living expenses are not too high and land costs are based on average farm prices.
- Mid-November 2012