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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.

 

Managing Your Numbers

Aug 06, 2012

 

One number that's been virtually impossible to predict is market price. The grain markets have not only been volatile, but they've been on a steady increase since June. The number one question I always hear is, "How high are these prices going to go?" As I keep saying, even the best "experts" are not certain. We're in unchartered territory, so marketing should be managed rather than maximized.
Since we have no direct control of what grain markets do, the best strategy we can employ is to stay focused on the situations that can be managed. There are four areas management focus can pay the best dividends which include live market quotes, accurate yield estimates, cash sale commitments, and crop insurance coverage.
Live market quotes are now available to virtually every farmer. If you have a computer, you should have live quotes! Fifteen minute delayed quotes quickly become irrelevant during intense volatility like we've seen recently. Time is critical as fast as these markets move; you could easily miss a target in less than 10 or 15 minutes. Many live quote tools also give you access to additional information that isn't offered through delayed grain bids.
Accurate Yield Estimates are purely dependent on your ability and willingness to walk your own fields. The more you walk and evaluate your fields the better your information becomes. The crops are unbelievably variable this year, as many of you already know. You know your fields best and the areas that are most representational to evaluate crop conditions and yield. Because of the variability this year, I would recommend measuring at least 1/1000 of an acre in each yield check you perform. If you remove every ear from 1/1000 of an acre you can visually inspect quality, variability, and harvestable ears all in one setting.
Cash Sale Commitments include any/all bushels you have sold for physical delivery. If you have cash contracts, be sure to continually calculate your "percent sold" as crop conditions either deteriorate or improve depending on your situation. I know of some producers who went from 30% sold to over 60% sold without selling anything! Because of crop deterioration, some producers may be faced with having to deliver physical bushels that they will not be able to produce. Even if you think you have ample bushels, be sure consider grain quality, storage, and pricing opportunities that may warrant delivering grain during harvest.
Crop Insurance Coverage: Until the fall price for corn and soybeans are determined, we won't know exact level of coverage. In the meantime however, be sure to review your APH and the level of coverage purchased for each crop. Be sure to stay in close contact with your agent to have a clear understanding of the exact revenue protection you have. Be sure to understand how many dollars per acre of revenue coverage you have at the spring price and be able to calculate how the fall price changes your coverage during the month of October.  Also, be sure to completely understand all of the terms and conditions expected by the insurance company in case you have a loss. There will likely be many operations this year that require an audit due to the large indemnity payments. Bottom line-be sure to read the fine print and stay in close contact with your agent.
No matter how crazy the markets get, staying focused on the parts of your business you can control will provide the best margin opportunities in the long run. There's obviously more complexity in these four areas than what I can cover in this blog alone. If you have specific questions and would like to go into more detail on any of these topics please send me your comments and questions.
 
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