Market Outlook

February 22, 2017 02:57 AM
 
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By Nate Birt

Your Spring Season Checklist

As producers seek to improve their bottom lines this spring, one approach they can try is to create cash-flow projections for the next 18 months to two years. When one quarter ends, do a quick comparison of actual versus budgeted expenses, then roll into the next quarter.

“It helps control spending,” says Jack Davis, Extension crop business management field specialist at South Dakota State University. “If there are other opportunities you can take advantage of, you might start to see those.”

From late February to the beginning of planting, it’s a good idea to holistically evaluate your operation in five key areas—commodity marketing, production, finance, legal and human risk—says Kelvin Leibold, Extension farm and ag business management specialist at Iowa State University. Be sure any plans remain flexible.

Here are steps you should take as you ramp up for the season ahead, according to Leibold and Davis

Commodity Marketing

  • Determine how much of the old and new crops you need to sell, and identify which tools to use. These can include hedges, options, forward contracts and accumulator contracts. 
  • Evaluate federal crop insurance guarantees and ensure your plan accommodates those figures.
  • Identify target prices and dates for commodity sales, and schedule sales orders.
  • Take steps to protect prices from downside risk.
  • Assess on- and off-farm grain storage needs, factoring in old crop that is in the bin and recent big yields.

Production

  • Figure out your acreage mix for the season based on weather, market demand and projected returns.
  • Review fertility programs and consider split applications, depending on nitrogen costs.
  • Weigh pest pressure and whether to beef up crop genetics, add pesticides per acre or take other steps.
  • Evaluate tillage systems to maximize management around resistant weeds and costs.
  • Consider spreading out machinery costs by bringing some repairs in-house and putting additional hours on the existing fleet.

Finance

  • Compare actual versus budgeted expenses more often than you have in the past. 
  • Analyze the costs and benefits of production decisions such as cutting back on traited corn and increasing chemical applications if needed to rescue the crop during the season.
  • Take stock of working capital to ensure cash flow. 
  • Integrate record-keeping systems to generate profit-and-loss statements for every farm you manage.
  • Maximize profitability by managing taxes and family living expenses. Consider a side business to add revenue.

Legal

  • Ensure workers are trained to limit the risk of spray drift and odor nuisances.
  • Review workman’s compensation policies, insurance plans and other risk-management products to ensure your business has adequate coverage. 
  • Evaluate health insurance plans and other benefits to verify you are compliant with regulations. 
  • Read through land lease contracts to ensure you are meeting landlords’ expectations.
  • Mend fences to keep livestock from wandering.

Human Risk

  • Work on your transition plan to ensure steps are in place to pass on the business as well as its management responsibilities.
  • Delegate some commodity-marketing duties to the next generation so they have real-world sales experience and feel the hit on their pocketbook if a decision doesn’t go as planned.
  • Coach team members on strategic planning.
  • Encourage your team to think creatively. 
  • Seek low-cost ways to hire out routine tasks.

Policy Update with Mike Adams

Trump Sets A Blistering Pace Inside The Beltway

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President Donald Trump has kept his promise to hit the ground running. He has set a frantic pace since taking office, causing some to wonder if he is trying to do too much at once.  

Although I have concerns with some of his moves, I also find it refreshing to see someone elected to office actually keep campaign promises. 

Time will tell if these moves are right or wrong, but for those who voted for change, he is delivering. For someone who is not a politician, Trump’s shrewdest political move as of this writing is his choice of Neil Gorsuch for the Supreme Court. The choice was so good it had to surprise Democrats and even some Republicans who expected a more controversial nominee. As the usual suspects in Congress criticize the choice, their attacks seem hollow and self-serving.  

Our government is based on a system of checks and balances, something Trump will be reminded of. Congress and the courts will have their say on many of his decisions. The system needed shaking up, but in the end, we need the system. Hopefully, we can have both. 


By Nate Birt

Ask an Analyst: Brian Roach  | Roach Ag Marketing

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What is your commodity marketing philosophy?
I see farming very much like a manufacturing center. Coming from a background in food and chemical production, the two are actually very similar. My approach to marketing has been to look for the best two to three selling opportunities per crop year using more data and less emotion to drive those decisions. Just as a grower relies on data to make informed decisions on maximizing yield, we want to be the leader in providing high-quality, data-driven selling decisions.

What’s one action every producer should take to manage marketing risk?
Most growers seem to struggle with selling at strong prices when crops are early. I think growers need to lean on higher-trending actual production histories. Think about selling profitable levels to a comfortable increment of the crop-insurance guarantee. 

What percentage sold should farmers be on their crops?
We don’t like to put a number on it because growers are so different. We’ve been more aggressive soybean sellers and used rallies to cover cash flow in wheat and corn. 

Which marketing tool is most underappreciated? 
Growers should look at basis as a way to add nickels and dimes to their average selling price. Pick one location, master the cycle and learn how to take advantage of it during the year. 

Who is one expert in our industry whose business advice you respect greatly?
I feel very fortunate I learned the business from my uncle, John Roach. We’ve been successful managing a growing business while teaching advisers how to make a difference with U.S. growers. 

What distinguishes your consulting firm from others?
Our strategies are more and more objective when we make selling recommendations. We are known for our Roach Ag Sell Signals, which point out multiple selling opportunities per year with a focus on the best available windows for more aggressive selling. We communicate each day in an easy-to-read newsletter coupled with a full service brokerage.

What activities do you enjoy? 
I’m a father of two and a husband for 15 years, so that keeps me busy. I also enjoy running and cycling.


By Nate Birt

Soybeans Cling To Weather Premium

Corn and wheat price action as of early February proved less than appealing to some traders. Yet those commodities are holding onto notes of hopefulness. Soybeans are a different story entirely.

“I think we’ve got a fair amount of weather premium built in, not to say we can’t add any,” says Clark Neighbors of Cedar Rapids, Iowa-based BIS Commodities in an interview with “Market Rally Radio” host Chip Flory. He notes prices have recently been about $1.50 above year-ago levels. Farmers and traders alike are watching conditions in South America with harvest on the horizon. 

Brazil and Argentina invariably face some combination of harvest delays and dock strikes each year, so it’s less likely those issues will send soybean prices higher, Neighbors says.

“Mark your calendar to it,” he says. “That sometimes can add some premium to the market.” Whether those issues create an opportunity for upside potential as weather did a year ago remains to be seen.

The trade is also cautious this year because of the surprising wet weather during spring 2016 that sent soybean prices shooting higher in March. “I think the funds decided they didn’t want to make that mistake again this year,” Neighbors says. “Keep in mind the funds are long right now, give or take 100,000 contracts.”

Those conditions mean U.S. soybean farmers should take caution, adds Jack Scoville of The Price Futures Group in Chicago. 

“I want to make sure producers have some hedges on, if not selling futures and selling cash,” Scoville says. “At least have some puts on.” 

Meanwhile, the fundamentals for corn and wheat are relatively negative, and price action has disappointed people such as Scoville. Yet there might be a glimmer of opportunity for both crops: Winter wheat acreage in the U.S. is at its lowest level in more than a century, and corn prices have crept higher for weeks.

“I kind of felt like when we had that wheat planted area here last month, that kind of put a change into that market and indicated that if we’re not going a whole lot higher right away, at least we know where the low is,” he says. “I kind of feel like corn is the same way. The demand, to me, has been better than people expected and should last longer into the summer because I think the South Americans are only going to be big competition in the corn market starting maybe in the middle of the summer.” 

To watch Market Rally live weekdays at 2 p.m. CDT, visit MarketRallyRadio.com.

 

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