After years of record margins for grain producers, 2013 might present some challenges. We have been rewarded to "not plan" and "not sell ahead."
Price opportunities have appeared later in the season, but that might not be the case this year. No one knows exactly when a margin opportunity will present itself, but if passed over, there are no guarantees for a profit down the road.
There are a few bullish components to the market that might provide windows to capture profits. Late-developing soybeans; the actual number of prevented plant acres; weather conditions; outside market conditions, such as the value of the dollar; realistic yields and a potentially oversold market will create market volatility.
Revisit, Reevaluate, Revise. As this volatility occurs, what price level do you need to lock in for your operation? If current prices are not sufficient, what price would be? Now is the time to revisit your 2013 marketing plan. It’s as simple as following three steps. First, assess your production costs so you know and understand your exact expenses per bushel. Second, review your price goals to determine if the price levels you hope to achieve are realistic. Third, calculate yield projections and then translate them into actual yield results during harvest.
While doing this, it’s important to calculate your revenue coverage, as the fall price is determined during October. It’s also a good time to calculate what your breakeven sales price is at each yield level. Don’t think of price alone; calculate what your gross revenue needs to be to achieve your margin goal.
Yield can dramatically improve margin opportunity. For example, at the spring price of $5.65, every 10 bu. of yield increase adds $56 of revenue per acre. If conditions across the Corn Belt improve, there could be an added $113 per acre of revenue, despite the lower price of corn.
To help achieve your gross revenue per acre, continually measure your yield prospects before and during harvest, as it’s a moving target.
I’ve created a tool called "Scenario Planner" to help you keep current on margin opportunities as you discover actual yield numbers this fall.
Revenue coverage might be the final saving grace that helps farmers capture a profit. This safety net could be especially important to those with very little grain sold or reduced yields.
If the fall price average comes in below the spring guarantee of $5.65, the yield guarantee is increased to equal your revenue guarantee.
Locking in a profit margin is critical to remaining sustainable. Focus on the gross revenue needed to achieve your goals.
Visit www.TopProducer-Online.com/Scenario_Planner to keep current on margin opportunities.
Chris Barron is director of operations and president of Carson and Barron Farms Inc. in Rowley, Iowa. He is also a farm business consultant and the author of the AgWeb.com blog, "Ask a Margins Expert." To submit questions and comments, e-mail Chris at email@example.com.