The December 2014 corn futures contract Sept. 27 was just shy of $5 per bu., but prices could be close to $1 per bu. lower than that come harvest a year from now.
So even if you haven’t sold your expected 2013 crop, should you still be thinking 2014, selling two years at nearly the same time? The way some analysts see it, it’s not too early at all to put your oar in the 2014 marketing water.
"Producers should consider marketing 10% of their expected production for next year, certainly if corn prices pop much over $5," says Jim Hilker, ag economist at Michigan State University.
Corinne Alexander, ag economist at Purdue University agrees that it makes sense to consider making some 2014 sales. "Prices next fall could be substantially lower than current December 2014 futures," she says. "Next harvest, the December 2014 corn contract could be much closer to $4."
Factors that could cause that include ending stocks that increase from 1.8 billion (using USDA’s latest number) for the 2013 crop to 2 billion, even potentially as high as 2.5 billion for the 2014 corn crop, she says. Like Hilker, she is not advising booking a large portion of your expected 2014 crop just yet, as there are many unknowns. However, if the crop looks good next spring and summer, prices could tumble in a hurry, Alexander adds.
Not all agree. "I like to market in parallel with locking in inputs," says Chad Hart, ag economist at Iowa State University. Without knowing what 2014 inputs are, it’s impossible to lock in a positive margin because you have no idea what it is, he says. "To market from a risk management perspective requires that you know both crop prices and crop costs."
Once producers know their inputs, he agrees that $5 for 2014 doesn’t look bad given what prices could fall to. Put options that far out are pretty pricey, and futures contracts mean that farmers must be prepared for margin calls, however, he adds.
One reason to consider doing some pricing soon for the 2014 crop is that that if crop insurance is based on $4.90 per bu. futures, 80% coverage means that the crop insurance price guarantee actually means protection falls, at APH yield, to under $4 per bu., says Lawrence Kane, Yates City, Ill., branch manager for Stewart-Peterson.This would result in considerably more income risk for the 2014 crop than the current year’s $5.68 guarantee, he says. Because of that, Kane suggests that it’s not too early at all for producers to consider using put options for the December 2014 contract for a portion of expected production.