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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.

 

Grain Margins & Price Volatility

Jun 19, 2011

 

Volatility is playing a major role in this year's marketing challenges. Volatility has a tendency to toy with our emotions, while at the same time creating tremendous opportunities. Markets continue to be affected by numerous factors such as weather, funds, the dollar, oil prices, supply, usage, ethanol discussions, and a host of other topics. As we deal with market uncertainty for this year's crop it is important to understand your margin as it relates to the price of grain.
As discussed in last week's blog, I introduced a margin calculator to help you better understand opportunity by looking at three specific components for your marketing analysis. The three components are:  yield, price opportunities, and cost of production. Understanding what market prices did last week is only part of the equation. We can all understand that July corn was off about $.86 and Dec. corn was off about $.52. The real question is how does the price move affect your individual margin opportunities? Let's take another look at the spreadsheet from last week, to understand how margins were affected.
       Example: $.52 decline in the weekly Dec. 11 corn price.

 
 
(Dec.11) 6-13
(Dec.11) 6-17
#1
Yield   (5yr APH)
186
186
#2
Grain Price
$6.92
$6.40
#3
Cost per/ac.
$925.00
$925.00
 
Cost per/bu.
$4.97
$4.97
 
Income per/ac.
$1,287.12
$1,190.40
 
Income per/bu.
$6.92
$6.40
 
Margin per/ac.
$362.12
$265.40
 
Margin per/bu.
$1.95
$1.43
 
Margin -- ROI
39.1%
28.7%
 
Change
 
10.5%

 
As you can see the market price change last week impacted the margin by 10.5% for this example. The value of having this type of tool is to help you be more focused on your marketing system rather than price alone. We all have unique opportunities with respect to yield, price, and cost of production. Analyzing your individual situation helps you paint a clear picture of local challenges and opportunities.
Prices will likely continue to be volatile. By focusing on margin management you can improve your ability of managing risk and profitability.
If you would like to receive this spreadsheet send me a request.
319-533-5703
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