The following commentary does not necessarily reflect the views of AgWeb or Farm Journal Media. The opinions expressed below are the author's own.
Kevin Van Trump has over 20 years of experience in the grain and livestock industry.
A few producers that I consider "very sharp," and who are all located in varying regions of the country seem to be making similar type moves these days This rarely happens, but when it does I tend to pay attention and take notice...I suggest you consider the same. First of all there seems to be a consensus amongst those who "know their numbers" and understand the overall shift in the markets. They seem to see a darker cloud moving overhead and are fearful in regard to how long it will block the big shinning profits we have all recently enjoyed. They understand that in order to survive the darkness they need to seriously focus on ways to best reduce their "per acre expenses" and limit any possible "production risk." The goal seems to be simple, "If you have to take a loss, make absolutely certain its the smallest loss possible." In other words some of smart producers are not only looking to make changes that help lower their overall expenses but also limit the variables associated with yield. By swapping a bigger portion of their acres from corn to less cost intensive soybeans might be one such solution. The beans are obviously a lot less expensive on a per acre basis and their production risk seems to be much less severe. The fear is that insurance guarantees could be at or below the cost of production for corn next year. If this is the case and you happen to be one of the unfortunate producers located in a small secluded area that gets hit with another drought or some type of extreme heat, causing a significant yield drag, your risk to the downside could be massive. If corn prices are trading between $3.50 and $4.50 and you have a bin busting crop you can survive, but if you come up short of your averages while prices are at rock bottom it could be very painful. Just as pilot tries to burn off fuel in order to limit the losses and or the extent of the damages on a crash, you need to be thinking about ways to start limiting your downside exposure as well. Two areas to focus on are #1. Reduce your per acre expenses by finding cheaper crops for portion of your acres #2. Mitigate your production risk by planting a crop that has the steadiest yields.
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