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March 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.


Should You Be Planting Corn or Soybeans?

Mar 26, 2012


The recent warm weather has almost every producer thinking about planting earlier than ever before. Many producers have their equipment ready to go. Most who are ready to go, also realize that once we start, it's difficult to stop.
As in past years, we can put an amazing amount of seed in the ground in a very short period of time. With the speed in which we can put a crop in the ground, most market analysts are assuming that this will lead to more acres of corn being planted. This is probably true; however, each individual farm should still analyze their plans before and during the course of the planting season.
I'm a huge fan of having written plans, although I recognize that plans can change in the middle of any process. Planting season should be no different. Obviously there are many acres which already have fertilizer and nitrogen applied which will be planted to corn. On the other hand, many producers have acres which are currently planned for corn on corn, which could still be changed to soybeans. Again, few people think this will occur because of the original plans of planting corn on those acres.
We have seen a price ratio improvement between corn and soybeans go from 2.0 to better than 2.3 in many areas. There are numerous producers that can easily justify planting more soybeans with the recent price improvement of soybeans relative to corn. Whether you plant corn or soybeans should clearly be determined on the specific needs of your individual operation. Run your own numbers to measure what makes the most sense for your maximum profitability.
If everyone's planting all corn or an extra field to corn, maybe it's not a bad idea to be on the other side of the fence and plant an extra field of soybeans? Can everyone be right? Will those who plant all or mostly corn make more money than those who plant an additional farm to soybeans? These are all individual questions which need to be answered internally. What the masses do should never influence your individual operational decisions.
In order to help you make the best decisions for your operation I've included a side-by-side comparison tool to help you analyze your plans. Timeliness, seed availability, planting conditions, temperature, forecast, previous crop history, management ability/capacity, production cost, yield, and price opportunities should all be factors that go into your individual decisions of whether to plant corn-OR- soybeans.
(click the table to view a PDF)
Planting Corn OR Soybeans 


If you'd like a copy of this tool in order to evaluate your specific situation send me your request and I'd be happy to forward you this tool.


Protect Your Margins

Mar 04, 2012


Last year at this time many producers were marketing grain fairly aggressively. Margins looked strong and many producers didn't want to pass up opportunities for strong returns. Some growers were priced at 50% or more of their estimated corn and soybean production. Conversely, this year the margins are not as strong. The motivation to make sales isn't very high, so many growers have little if anything priced for the 2012 crop. Emotionally it's difficult, because over the past couple of years doing nothing and waiting has worked as a pricing strategy.
Caution: Doing nothing as a marketing strategy could be a high risk scenario for your 2012 budget. No one can say with certainty whether we will see $4.00 or $8.00 corn. A case can be argued for either scenario depending on planted acres, weather, and demand.
With the cost of production at relatively high levels this year, risk management needs to be a key part of your business plan. Prioritize your time with your crop insurance agent to make sure you have adequate coverage. The spring price for corn this year is $5.68, for soybeans it's $12.55. Depending on your APH, these price levels will give most producers significant protection. As you evaluate your coverage options be sure to compare the gap between your cost of production and your revenue guarantee. In many cases, it's justifiable to increase levels of coverage.
Remember to stay on top of the price ratio between corn and soybeans also. With the recent rally in the price of soybeans, there are some farmers who are at price levels for soybeans which may warrant changing the plan back to soybeans on some acres.
Another way to protect your margins in the weeks to come may be with the use of options. If you're not comfortable with making cash sales at these levels or during rallies, you may want to consider putting a floor price under some of your grain. Depending on your level of crop insurance coverage and your strategy for pricing cash grain, you can determine your individual need for an options strategy. Each farming operation is unique and warrants its own set of strategies, so take the time to clearly understand the tools that are available.
There is nothing wrong with taking a profit on a small sale to get your marketing started for 2012, especially if you haven't done anything to this point. Profit margins were fairly large last year, so it's difficult to make pricing commitments when the margins are about half of what we saw last year. Be careful not to get caught in the trap of doing nothing at a time when you can protect yourself against downside risk. Now is the time to focus your attention on the tools that can protect your margins.
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