Q. Kevin, what do you think about getting 50% sold in my 2012 soybean crop, considering the weak fundamentals that are setting up?
A. In the "real" world, there is an issue with getting yourself sold too far out - too early. Not that those in the "trading" world or advisory business ever really feel the pain. But for those producers who are aggressively trying to expand their operations or participate in the great "land grab" that is taking place, there are some definite areas of concern. I could talk extensively about the details, but to make it plain and simple, and for argument's sake, let's just assume the Funds jump the bean market and prices explode to $18 or $20 (not that I am in that camp, but simply for argument's sake let's run with it).
There are many producers now in the game who are flush with heavy cash, and have the ability to store a large majority of their crop. Let's further assume these "homerun" producers (what I like to call them) have 0% sold in 2012. You, on the other hand, pull the trigger early locking in your profits, and get yourself 50% sold. If we base this scenario on a 30,000 acre operation (assuming a yield of 43 bpa yield) the homerun hitter ends up banking an extra $5 on every bushel or at least on the 50% of the bushels that you elected to pre-sell early on. In this scenario, the homerun producer ends up banking at least (645,000 bushels x $5) $3,225,000 more than you.
The problem I am seeing is that extra $3.25 million he is now sitting on immediately goes to work against you and your operation, by bidding up the cash rents in your area and snagging any and all farms coming up for sale. Not to mention input costs or other unforeseeable expenses that you could incur, ultimately reducing your penciled profits in a hurry.
In today's world it is of my opinion that getting yourself 20% sold this early in the game is one thing, but 50% is ONLY for those who are not in an expansion type mode or needing to hang on to leased acres. If you are a producer who owns your ground outright, have no cash rents coming up for lease, and you are not concerned about buying ground in this environment, pencil the profits and lock them in.
As for predicting future soybean prices, I am with you in the fact that soybeans seem to have little if any story at the current time. This seems to be what everyone thinks, and that is what worries me. If everyone is thinking there is NO story, and prices are at these levels, what the heck happens when a bullish story actually does hit the trade?
Remember, China is openly announcing....
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