Know the landscape and capture pricing opportunities
The 2017 marketing year already has a different tone than that of a year ago. By early March, average soybean prices were $1.30 stronger, and corn prices were about 10¢ higher. Prices might still feel low, but high yields and better-than-expected prices this past year provided some relief for farmers.
Yet experts say marketing plans are even more vital today.
“When you look at the difference between 2016 and 2017, we’re coming in with a way better position,” says Matt Bennett, a producer from Windsor, Ill., and a grain marketing consultant with Channel Seed. “But don’t make any big, broad assumptions that we’ll see the same kind of market moves this summer. No two marketing years are the same.”
To combat negative market moves and seize opportunities to capture revenue, farmers need to create a marketing plan based on their break-even costs and stay disciplined to execute that plan, he says.
“You have to be in tune with your expense structure,” Bennett says. “You have to know what it means if we get a 15¢ rally.”
Comprehend Costs. After you know your full cost of production including a modest return for family living, your minimum price objective becomes clear, says Ed Usset, an ag economist at the University of Minnesota. Set a realistic maximum price target at which you can make a sizeable profit. Finally, add in a timeline for sales.
“Decision dates make it a real plan for action,” Usset says.
Usset likes to circle one day each in the months of April, May and June. If you hit one of these dates and prices are above your minimum price objective, make a sale. “There’s a strong tendency for markets to be higher in the spring,” he explains.
Prices have rallied during each of the past three springs. Watch for those seasonal rallies, just don’t expect them to last, advises Chad Hart, ag economist at Iowa State University. The same sort of seasonal run could occur later into the springtime this year.
“I just don’t think it will be as strong or long as we saw last year,” Hart says. “I’m looking for April or May to be pretty good. But I expect it to die off as we get into June. Last year, we took the rally through the Fourth of July.”
Remove Emotions. The biggest advantage of a written marketing plan is its ability to keep you focused on your own farm operation rather than on the distractions that can surround grain marketing.
“Don’t let the noise, a shift in sentiment or some kind of weather event change your marketing plan,” says Joe Vaclavik, market analyst and president of Chicago-based Standard Grain. “The biggest marketing problem farmers have is their inability to pull the trigger and make a decision.”
This spring, farmers should be patient making sales and spend extra time analyzing production costs along with expected revenue.
“It is very early in the ballgame,” Vaclavik says. “I don’t see the reason to get really aggressive in pricing. I’m not willing to throw the towel in this early and say we’re just going to break even this year.”
He encourages farmers to make some small sales to get the ball rolling. “Many farmers in the Corn Belt have coverage on 80% or more of the crop,” he says. “So I say: ‘Go sell 15%, and let the crop insurance portion of it do the work.’ That way, you can sleep a little bit better.”
Small sales can give producers time to assess the effects of acreage expectations from USDA and others. The agency’s Planting Intentions report will be published March 31. Allendale released its projections in mid-March calling for 88.83 million acres of soybeans, the most ever planted in the U.S. It says corn and wheat acres will fall from 2016.
A detailed marketing strategy will help you maximize profits and minimize losses, Usset says. “A plan is a benchmark for goals, and it gives you something to adapt in a changing environment,” he says. “I’m not shooting to get the highest price, I’m shooting for a good average plan.”
Demand Outlook Appears to be Strong for both Corn and Soybeans this Year
Which factors will spur a market rally this year? Most people assume weather issues are the No. 1 driver, says Matt Bennett, a Windsor, Ill., farmer and grain marketing consultant. But that’s not the case. “Weather is secondary,” Bennett says. “First, you need demand.” Here’s a look at the robust demand outlook USDA projects.
Corn: Total corn use for 2017/18 is projected to be 14.2 billion bushels, down from 2016/17. Yet it would still be the second-highest usage on record. Lower exports are predicted to make up for most of the decline along with lower feed and residual use. Meanwhile, usage is set to rise for ethanol, food, seed and industrial products such as high-fructose corn syrup, starch and cereals.
Soybeans: Strong global demand is likely to continue this year, boosting U.S. export volume and supporting prices. U.S. soybean exports for 2017/18 are projected at 2.1 billion bushels, up
75 million from the record levels seen in 2016/17. Yet strong production from South America should cause a slight decline in U.S. global export share. Domestically, soybeans are expected to see a 1% increase in usage because of gains in pork and poultry production.