Is it Time to Book Fall Inputs? -- Check Your Spread, Check Your Gut

May 7, 2013 06:47 AM
 

 

A friend of mine has a fair portion of old-crop corn still in the bin and wondered if it wouldn't be a smart move to sell some of that old-crop to finance inputs purchases, forward booked for fall. Locally, he could probably find a bid for $6.75/bu. today which isn't bad. Meanwhile, fertilizer prices are flat to slightly lower, and have been on that general path in anticipation of demand news for corn.

The price of inputs has been tied to natural gas, corn futures, unrest in parts unknown, solar flares, aurora borealis, spots on the first born calf... What actually determines how much growers spend on inputs is the end user's appetite for risk.

The numbers --

If we assume old-crop corn can fetch $6.75 today, that totals $830.25/acre in old-crop revenue. 18% of that -- NPK critical price resistance point -- equals $149.45/acre. A 140lb/acre anhydrous application at today's price of 53 cents per pound of N totals $74.20 leaving almost that much again for P&K. If you look at the spread between expected revenue and fertilizer pricing, this scenario paints the old-crop marketer as pretty smart.

I also like to look at the spread between December new-crop futures (ZCZ) and one ton of anhydrous. Your Inputs Monitor posts the regional anhydrous price this week at $871.37 per short ton. Dec 13 corn is roughly at $5.35 and would yield $816.00 per acre in new-crop revenue. The NH3/ZCZ spread is wide at $55.37, but thinning with NH3 on top. ZCZ at $5.72 makes the two dead even, but increases in corn generally inspire increases in fertilizer pricing down the road.

Your gut --

It boils down to your appetite for risk. If that old-crop in the bin is wrecking your life, there have been worse times to sell corn. If a portion of old-crop sales were used right away to hedge some front-booked fall coverage, that's two birds with one stone. Everybody wants to hit a homerun and will sometimes hold crops, waiting for the opportunity to make a move, but not everybody can live with that level of uncertainty.

Growers have reported losing sleep, drinking more heavily and feeling 'out-of-sorts' when old-crop supplies linger. Ask yourself what would happen if old-crop prices suddenly lost 2 dollars -- unlikely, but possible. What is your gut response to that thought? If it makes you nervous, it is probably time to make a move toward the bottom of the bin. Follow your gut to define acceptable levels of personal risk. After all, a guy's gotta sleep.

So run the numbers on that old-crop corn and check with your preferred retailer to see if inputs prices are 'low' according to your own appetite for risk. Inputs prices may fall dramatically and make monkeys out of all of us, but fall product does look pretty attractive at these current prices. Consider shaving some bushels off your old-crop supplies in exchange for booking part of your fall NPK needs today. You may sleep better tonight.


 

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