For Some, Early Action Equals Breakeven or Better for 2014 Crops

06:04AM Sep 10, 2014
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It may seem like the sky has fallen for corn and soybean prices, yet a growing chorus of producers is finding a silver lining. Many of these farmers have pre-sold part of their expected big crops—which helps—but it’s not all about marketing. Producers also are aided with crop insurance revenue protection, and expected farm program payments, although the latter won’t probably arrive for about a year for the 2014 crop. One more glass-half-full point: for many, breakeven costs for 2014 are falling, courtesy of record yields that producers expect to soon see on their combine monitors.

"I expect to break even on 2014 corn and could show a small net profit," says Marty Tegtmeier, a Sumner, Iowa, corn and soybean farmer. Between January and March, he pre-sold 20% of his expected crop between $4.05 and $4.65. Additionally, Tegtmeier purchased crop insurance revenue protection at the 85% level for 2014, helping to provide a price floor.

After spending a week inspecting corn and soybean fields in four key states on Pro Farmer’s Midwest Crop Tour in late August, Tegtmeier is less bearish on the market than some. "I don't think the corn crop will be quite as big as USDA says," he explains. Because of that, Tegtmeier anticipates market rallies that he’ll sell into sometime in 2015. Even so, he admits that he will likely sell some corn at less than $4/bu., mainly because he needs to sell about 25% of his crop before the end of harvest to free up storage space.

Tegtmeier is not the only one staring at a potential profit. "We’re 100% sold for 2014, 40% at $5.25/bu. and another 40% at $4.75," says Dave Huper, an Alden, Minn., farmer. A firm believer in forward pricing when he can lock in a respectable profit, Huper began selling his 2014 crop in July 2013.

Huber quickly adds, however, that marketers like him who lock in prices when they reach profit targets have pulled up short the past several years, when selling right off the combine provided the highest prices.

Market Strategy Reversal

The tables have turned in favor of aggressive risk managers this year. In fact, Huper wishes that he had been even more aggressive and sold further out. "We should have been selling 2015, too," he says. He adds that he did lock in some prices, however, selling a December 2015 call in May for $5/bu. that could net him 50 cents, unless prices catch fire.

On soybeans, he’s 100% pre-sold on 2014, and 25% sold on November 2015 beans at $12.80. He started buying $11/bu. 2015 puts in May, but kept rolling them up in 20-cent intervals when prices moved in his favor. He rolled these puts up nine times during a two-month window, each time protecting an additional 20 cents for the cost of 10 cents. This strategy allowed him to protect $12.80 soybeans for a cost of 90 cents, thus a net of $11.90/bu. He admits it wasn’t easy to make out all those trading checks, but in retrospect, he’s glad he did. Huper credits his market adviser, Bob Utterback, for developing these selling concepts.

"I'm over 50% sold on beans and about 30% on corn," says Steve Fellure, a corn, soybean and cattle farmer in Attica, Ind. His pre-sales on soybeans are about normal for him, and a little below normal on corn. "I think I'll have a profit on soybeans," he says. That estimate includes what he pre-sold with what he’ll have to sell at lower price levels.

Fellure anticipates a slight profit on corn, but thinks he’ll have to wait for it. "We’ll store and hope for a rally," he says. Fellure thinks that could happen in one of two ways: a spring 2015 weather rally and/or "quick bids" from ethanol plants when they need corn, which would more than likely occur during planting season. "If they need corn, I'll take the time to ship it," he says. "I don't think rallies will all be about the weather."

Another way Fellure is maximizing potential returns is to grow waxy corn, which gives him a 40-cent premium. "When corn got to $6 to $7, many farmers stopped growing it, but I thought I'd need it again," he says.

Tim Gregerson, a Herman, Neb., producer, pre-sold 35% of his corn in early spring when prices were in the mid-$4/bu. range, which 5% more than he normally pre-sells. "Corn demand is very good," he says, a key factor for why he believes marketing opportunities will present themselves this coming spring. Because of that, he plans to plant more corn in 2015, which he admits is a contrarian move. "Producers may plant more soybeans to save on input costs in 2015," Gregerson says.