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July 2012 Archive for Ask a Margins Expert

RSS By: Chris Barron

Chris BarronHave a margins question? Through this blog, you will gain insight into improving your bottom line, as a margins expert answers questions and provides farm business advice.

 

Stay Margin Focused

Jul 29, 2012

 

 It’s easy to become consumed by the shock and awe of stressed crops, low yield potential and record-setting grain prices. With the yield uncertainty on our individual farms, most producers switch focus over to the markets alone, knowing that we’ll need higher prices due to lower yields.
 Many producers made sales at price levels lower than where we are now, consequently they may feel the pressure to try and sell additional contracts at proportionately higher levels in order to average a “better” price.
The uncertainty of yields and where prices are going can also cause paralysis for some growers. Doing nothing may be very short term solution, but keep in mind during times of uncertainty and volatility there are always opportunities. Always be planning your next move; try not to sit on your hands.
There's obviously some frustration among many growers with the challenges and uncertainties we've been dealt this year. Hindsight is 20/20; we can all look back on what we should've done with our marketing plan to this point. Don't let previous decisions impact your judgment and strategic planning for the rest of the year. Worrying about what should have happened doesn't matter at this point. Build your plans for success from here forward.
 Stay Margin Focused. Firstly, recalculate your cost of production. Be 100% sure that you know your costs per/acre and per/bushel. Once you're completely confident about your costs, you'll be able to calculate the expenses you have covered with your current marketing. You'll also want to run various scenarios to determine yield and price combinations which accomplish your margin goals. In many cases price and yield may fall short of a positive margin. This is where crop insurance comes in. Be sure to stay in contact with your insurance agent, discussing your crop conditions and expected revenue coverage’s. Lastly, consider tools for protecting these higher price levels. Put options may be one of the best tools, especially for covering bushels that are too risky to forward contract.
As stated in the past, I have numerous tools designed to help you calculate different scenarios. Feel free to contact me with questions or to request margin management tools.

Twitter Survey 2012 Corn Yield Expectations

Jul 19, 2012

 

Here are the results of the Twitter survey conducted over the past several days.
We asked “FARMER ONLY” participants for the following information: the state where you farm, 5 year avg. yield or APH, 2011 actual yield, and your estimated 2012 yield.
We recognize this isn't a scientific study; however, we felt a survey from farmers specifically would give us a good cross-section of the realistic situation.
Here are the results from the farmers who responded to the survey. Below the results, you'll find the individual list by producer and state.
39.................. Totals farms represented in the survey.
12……………..… States including 1 entry from Canada represented.
 
169.96……... 5yr avg. or APH- production represented by the group.
 
168.39………. 2011 avg. production represented by the group.
 
114.64…….… 2012 avg. YIELD ESTIMATE represented by the group.
 
32%.............. 2012 % estimated loss from 2011
 
32.5%.........2012 % estimated loss from 5 yr Avg.
 
53.8 bu….…. 2012 BPA estimated loss from 2011
 
55.3 bu……… 2012 BPA estimated loss from 5 yr avg.
 
 

2012- FARMER- Yield Estimates & Comparisons
Your
5 yr avg.
2011
your farm
 
 
% of
State
APH
Avg. yield
yield est.
11 vs 12
5yr vs. 12
5 yr Avg.
C Arkansas
180
165
190
25
10
105.56%
C Illinois
202
204
75
-129
-127
37.13%
C Indiana
153
113
70
-43
-83
45.75%
C Nebraska
195
185
190
5
-5
97.44%
Dresden, ON, Canada
190
202
170
-32
-20
89.47%
E Indiana
175
145
90
-55
-85
51.43%
EC Indiana
155
151
50
-101
-105
32.26%
EC Indiana
162
175
115
-60
-47
70.99%
EC Indiana
165
142
60
-82
-105
36.36%
Illinois
188
190
140
-50
-48
74.47%
Illinois
200
200
110
-90
-90
55.00%
Illinois
176
207
113
-94
-63
64.20%
Indiana
145
130
70
-60
-75
48.28%
Iowa
186
193
140
-53
-46
75.27%
Iowa
192
190
120
-70
-72
62.50%
Iowa
165
185
115
-70
-50
69.70%
Iowa
186
189
110
-79
-76
59.14%
Iowa
178
174
125
-49
-53
70.22%
Iowa
185
192
130
-62
-55
70.27%
Michigan
156
183
70
-113
-86
44.87%
Michigan
180
186
125
-61
-55
69.44%
Mississippi
155
152
170
18
15
109.68%
Missouri
127
92
60
-32
-67
47.24%
N Illinois
189
182
125
-57
-64
66.14%
Nebraska
220
215
230
15
10
104.55%
Nebraska
195
185
190
5
-5
97.44%
Nebraska
118
125
60
-65
-58
50.85%
New York
141
120
120
0
-21
85.11%
NW Minnesota
110
70
140
70
30
127.27%
NW Missouri
139.6
160
95
-65
-44.6
68.05%
Ohio
214
219
215
-4
1
100.47%
SE South Dakota
151
169
50
-119
-101
33.11%
South Dakota
157
153
165
12
8
105.10%
South Dakota
155
165
30
-135
-125
19.35%
SW Illinois
172
136
58
-78
-114
33.72%
SW Indiana
162
168
60
-108
-102
37.04%
SW Iowa
178.9
186.3
175
-11.3
-3.9
97.82%
W Kentucky
160
189
30
-159
-130
18.75%
WC Ohio
170
180
120
-60
-50
70.59%
TOTALS
169.96
168.39
114.64
-53.8
-55.3
67.45%
 
 
 
 
 
 
 
 
 
 
 
 

 

Taking Advantage of High Grain Prices?

Jul 12, 2012

 

One of the big questions many producers are pondering is how high could these prices go? As I've always said no one can predict with certainty what prices will do. Variables like demand, weather, and yields will continue to pull the market in both directions.
The key for producers is to be sure to ask the right questions. Instead of asking how high prices may go, ask the question; “how can I take advantage of high prices and strong profit opportunities?” Many producers at this point no longer have the luxury of making cash sales. Wilting crops with unknown/unreliable yields are becoming impossible to price in the cash market. Some producers who thought they were 30% sold may now be as high as 60% sold or more!
What are some risk management options? First of all, review your crop insurance; understand the exact value of your revenue coverage. Double check your cash sales, calculate a realistic yield and your percent sold, recognizing that this is a moving target as crops may deteriorate further. With this information you can then determine your potential profit situation and current risk.
Next, consider managing this risk and protecting strong grain prices with put options. Don't let these price and profit opportunities slip away. At the very least discuss a potential plan with your marketing advisor!!
If you're not setup to use these tools, now is the time to open an account! Study your individual information and build a plan before these opportunities escape.
I'm not trying to give marketing advice here, but rather, advise you to use these marketing tools. You don't have to use these tools; however, you do have to compete with those who do!
Send me your questions or comments.
cbarron@cb-farms.com

Summer Marketing Scenarios

Jul 04, 2012

 

Scenario management is a process used among the most successful businesses. This practice is best utilized when future conditions become less predictable. Instead of determining one expected outcome, these businesses look at a number of different possibilities simultaneously. Alternative options are calculated in order to create more reliable information for decision-making. Now is the critical time for corn and soybean producers to analyze several different scenarios, as crop conditions, market volatility, and weather all present tremendous uncertainty.
 Crop conditions: Some areas of the Corn Belt have received adequate rains; however, heat has even become a concern in the areas with moisture. Be sure to continually scout fields in order to have a good handle on your own “individual conditions.” Rainfall, heat, insects, and diseases are risks that will need to be monitored for the rest of the growing season. Staying on top of this information daily will help you more accurately estimate yield potential.
Market volatility: The grains have made a significant price increase over the past several weeks. There is no guarantee price increases will continue. In past years market prices reached highs quickly as “crop condition ratings” deteriorated, followed by a rapid decline in price. During those same crop years, we saw an average price increase from the spring low of approximately 42% for corn. This year our spring low was $4.99 for December corn, which means: if corn rallied 42%, we may see a high come in around $7.08. Obviously, this is historical information and has no direct correlation to what could happen this year, but it does give you another scenario for calculating opportunity. Stay informed “daily” as conditions change in these markets, there's no doubt that volatility will continue!
Weather: Long-range weather models continue to forecast above normal temperatures and slightly below average moisture. Many areas of the Corn Belt have now depleted subsoil. Timely rains will be critical for many areas to maintain “current” yield potential. Some areas have had adequate moisture, but continued heat stress may threaten yield potential, especially during pollination. No one really knows for sure if this drought will intensify or whether we’ll see relief. Regardless of what the weather does, be sure to continually calculate its impact into your marketing decisions.
I’ve briefly discussed three uncertainties that we currently face for crop production. Undoubtedly, there are others and the complexities go much deeper than can be covered in this article. My point for this article is to not only encourage you to understand the existing situation, but also to evaluate numerous scenarios and “what ifs.” We face major uncertainty moving forward in the next month or two regarding crop conditions, market volatility, and weather. Be sure to continually review your profit opportunities as conditions change.
Here is a scenario calculation tool for crop production. This tool will allow you to run several side-by-side comparisons. Reviewing these scenarios will give you some insight as you make the complex decisions that lie ahead for your operation.
 

 
Margin Scenario Calculator
 
 
 
 
 
 
 
                                Fill in Boxes
Info. Here
CORN
 
 
Green Boxes Report Info.
Results
 
 
 
Compare
2011 Crop
Scenario #1
Scenario #2
Scenario #3
Scenario #4
Yield
192
180
170
160
140
Grain Price
$5.89
$5.75
$6.00
$6.50
$7.00
Cost per/ac.
$875.00
$875.00
$875.00
$875.00
$875.00
Cost per/bu.
$4.56
$4.86
$5.15
$5.47
$6.25
Income per/ac.
$1,130.88
$1,035.00
$1,020.00
$1,040.00
$980.00
Income per/bu.
$5.89
$5.75
$6.00
$6.50
$7.00
Margin per/ac.
$255.88
$160.00
$145.00
$165.00
$105.00
Margin per/bu.
$1.33
$0.89
$0.85
$1.03
$0.75
Margin -- ROI
29.2%
18.3%
16.6%
18.9%
12.0%

 
If you'd like a copy of this tool, I'd be happy to send it to you.
Also, if you have questions or comments e-mail me at:
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