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Producers Suspend Sales

October 5, 2011
By: Ed Clark, Top Producer Business and Issues Editor
 
 

Weaker yield prospects shift sale strategies


Some farmers say they will cut back on marketing in light of what they expect to be significant yield declines.

“I’m putting the brakes on,” says Tim Gregerson, a corn and soybean producer in Herman, Neb. “The western Corn Belt can’t make up for yield declines in the East.” In particular, he will delay 2012 sales.
 
Because of anticipated near-record-tight carryover stocks this fall, Gregerson believes the trade will have to aggressively bid against other crops for more corn acres in 2012—and that means the likelihood of higher corn prices.
 
Further heightening his cautious approach is his own experience this year. “On 25%, or 1,000, of my acres, production will be zero this year due to Missouri River flooding,” he states.
 
Initially, Gregerson was optimistic about yields in the western Corn Belt. But when Pro Farmer Midwest Crop Tour scouts canvassed his home state in late August and found a 2% decline in ear counts, he knew yield was going to be lower than expected. Moving into Iowa, the crop looked even worse: an estimated 18% yield decline for southwest Iowa due to hail and wind damage. It quickly became clear that the western Corn Belt was not going to make up for the yield hit in Indiana, Ohio and Illinois.
 
Extensive Crop Injury. “Seeing what happened in southwest Iowa makes me think that you better not market anything you don’t have insurance coverage on,” says Denny Rollenhagen, a corn and soybean grower from Wells, Minn.
 
Like other farmers on the Crop Tour, what Rollenhagen saw firsthand in the western Corn Belt made him a more conservative marketer moving forward. “Because of the heavy crop losses, I think it’s best to not be more than 50% to 60% sold,” he says.
 
Drought cornSome crop scouts with double-digit years of experience say they’ve never seen damage as severe and prevalent as what they saw in southwest Iowa. Heavy hail and wind damage leveled crops in five counties.
 
Moving north, cold and wet spring conditions turned hot and dry during July. From July 15 through the end of August, Minnesota Lake, Minn., farmer Lawrence Landsteiner had only an inch of rain. The weather took its toll on Minnesota yields, which were forecast to be nearly 6% below 2010 Pro Farmer estimates.
 
On Aug. 29, the Monday following the release of Pro Farmer’s yield estimates, corn prices edged toward $8 per bushel. Prices receded a few days later because of weaker USDA export projections due to the expectation for a short crop and high prices.
 
Landsteiner sold some 2011 and 2012 crops this spring, “maybe more than I should have,” he says, “because we’re going to end up with a shorter crop than USDA has anticipated.” He forward contracts with county elevators, an ethanol plant and a feed mill and sells soybeans to a large processing plant.
 
Despite the fact that he’s worried about how much he’s already sold, he knows it’s important to always sell some ahead.
 
Strategy Selling. Dale Kuehl, a corn and soybean producer near Atlantic, Iowa, doesn’t plan to significantly alter his marketing plan. His farm was a stop for one group of scouts on the Crop Tour.
 
“I’ll end up 60% sold before harvest. I started selling the 2011 crop in December 2010. I have a set pattern,” he says. “I sell so much every month or two, while watching the markets and outside influences with the help of my commodity broker.”
 
One major surprise for Jay Merry-man of Marshalltown, Iowa, this year is the lack of soybean insect and disease problems—such as sudden death, white mold and aphids—in the Midwest. That leads him to be optimistic that if soybeans get an additional rain, yields could end up being quite good.
 
“Where we hoped we would run into an outstanding corn crop in western Iowa, we didn’t,” Merryman says. “Mother Nature dealt us a double blow in July—she turned off the irrigation system and turned up the heat during pollination, especially at nighttime.”
 
Merryman still thinks the crop in western Iowa will be above average to very good, perhaps 7.5 to 8 on a 10-point scale.
 
He believes that producers need to seriously consider a selling strategy that goes out as far as 2014 because $7.50 corn is not going to last forever. Eventually, he predicts, more corn will be produced around the world at this price point.
 
“At $6, $7, $8 per bushel corn, we will plant 100 million acres [in the U.S.],” he predicts. This year, 92.3 million acres were planted, up 4.6% from 2010, according to USDA.
 
In addition, prices at these levels will curb demand, although rationing will not occur until the second half of the marketing year, in Merryman’s view. Don’t forget about how input costs, which are higher, fit into the equation. Farmers will need higher prices to break even.
 
It wasn’t that long ago—June 29, 2010—that corn prices were $3.50 per bushel. “Don’t get so shortsighted that you think corn can’t go below $4 per bushel again,” Merryman says.
 

Lessons from the Pro Farmer Midwest Crop Tour

Tim Gregerson> Because of yield declines found by scouts on the Pro Farmer Midwest Crop Tour, Nebraska farmer Tim Gregerson will “put the brakes on” marketing his 2011 and especially his 2012 corn crop. He’s also worried about another wacky weather year after losing one-quarter of his production to flooding.
 
 
Denny Rollen hagen> After witnessing the damage caused by hail and wind in southwest Iowa, Denny Rollen-hagen thinks it’s best to refrain from marketing anything that isn’t covered by insurance. Yields in his home state of Minnesota are projected to be down 6%, but that’s not as bad as southwest Iowa’s 18% hit.
 

 

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FEATURED IN: Top Producer - October 2011
RELATED TOPICS: Corn, Marketing, Crop Tour Coverage

 
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