Farmers are facing a slew of uncertainty. Everything from trade negotiations to production risk from flooding to delayed planting is causing market volatility.
Due to large global ending stocks of corn and soybeans, news of flood damage has not affected the futures price of these commodities as one might have expected it to, explain University of Nebraska educators and economists Robert Tigner, Jessica Groskopf and Cory Walters. This is a challenge for farmers facing flood damage, as their revenue will be impacted by both lower than usual yields and possibly lower prices and costs incurred due to flooding.
Don’t let these challenges override best practices for grain marketing. Follow these steps, provided by the University of Nebraska experts, for planning your 2019 grain sales.
1. Assess your anticipated production.
Due to flooding and a wet spring, your production estimates likely need to be updated. The University of Nebraska experts suggest you estimate the total production in each of the following categories.
- Likely normal production. Use actual production history (APH) as your yield estimate.
- Production that was damaged but still planted on time. Use a slightly reduced APH yield estimate.
- Production that was damage and planted late. While you will have production on these acres, too many variable make it difficult to estimate production.
- Prevented planting. No production on these acres. (Learn More: Is Prevent Plant the Most Profitable Option in 2019?)
2. Set your marketing percentages.
This is difficult, but determine your goals for how much of your production you want to market ahead of harvest. Contracting more grain than you produce can result in a lower revenue if you have to pay a “buy back” fee to the elevator, or buy bushels from a neighbor to fulfill your contracts.
Remember, you do not have to sell any grain prior to harvest. However, corn and soybean prices are traditionally higher during the growing season than at harvest. Consider updating your marketing percentage throughout the year as you see how your crop progresses.
3. Determine the marketing contract.
You can choose from several types of contracts to sell your grain, some of which require delivery of the grain and others that do not. If you are less confident in your yield estimate, you may want to use options and futures hedging, which provide price protection but do not require physical delivery of the commodity.
If you are comfortable with guaranteeing delivery, you can use a forward pricing contract, hedge to arrive (HTA), minimum price contract or basis contract.
4. Set price targets.
Given greater yield uncertainty, it is important for your pre-harvest marketing plan to set realistic price targets. If you set your price targets too high, you may miss opportunities to price grain at its seasonal high. USDA’s May World Agriculture Supply and Demand Estimates (WASDE) predicts the corn season-average farm price is be $3.30 per bu. and a season-average soybean price of $8.10 per bu.
With the May USDA reports, Ted Seifried, chief market strategist and vice president with Zaner Ag Hedge Group, encourages farmers to rethink their price targets for corn and soybeans.
“With this report, we have to lower our expectations,” he says. “We're hoping to see some price recovery to sell. If we do, we need to be fairly aggressive on selling.”
5. Map out your sales deadlines.
The December corn contract and the November soybean contract have slowly been trending lower since Jan. 1. If your early 2019 price targets have not triggered sales, you will want to set a secondary trigger in the form of time deadlines to insure that some grain is sold during the growing season when prices are traditionally higher.
Learn More: Crop Marketing Plans with Yield Uncertainty
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