December 2, 2008 06:00 PM

Diversify sales for lower risk

In uncertain times, dividing your eggs among several baskets is step one in risk management, financial and marketing advisers say. "In a volatile market such as we are going to experience the next few months, no one knows for certain exactly what is going to happen,” says Richard Brock of Brock and Associates. "Marketing in small percentages at profitable price levels will pay off in the long term.”

Step two may be to use different pricing mechanisms—futures, options, cash sales.

Step three is spreading sales among different advisers. "Mar-keting advisers have different philosophies and their results may vary depending on the type of market we are in,” says Scott Harms of Archer Financial Services, who has made sales for clients based on the advice of services in our Track Records for almost 15 years. "Riding a [past] winner too hard can backfire. It's important to keep diversity.” —Linda H. Smith

More ethanol bankruptcies predicted

Expect more ethanol bankruptcies, says Mark Lakers, president of Ag and Food Associates, an Omaha, Neb., bank. He expects as many as 40 Chapter 11 filings by January's end, including 16 VeraSun plants that filed bankruptcy on Oct. 31. He believes the 150 ethanol plants in the U.S. will fall to 25 to 50 over the next five years.

Lakers anticipates that companies owning plants with less debt will buy newer but more debt-ridden facilities. "You have 25% to 30% of the industry desperately looking for new lenders,” he said at the National Agricultural Bankers Conference in Des Moines, Iowa, on Nov. 17.

Rather than paying the $7/bu. at which they contracted in midsummer, the plants can buy corn at current, much lower, market prices. —Charles Johnson

Possible recourse

If your buyer files bankruptcy, you may have some recourse under the Uniform Commercial Code, which governs contracts for the sale of goods in all states except Louisiana. Section 2-702 provides the following, reports Ashley Gulke:

(1) A seller may refuse to deliver when he discovers that the buyer is insolvent.

(2) If the seller discovers that the buyer received goods on credit while insolvent, he may reclaim the goods if he makes a written demand for the goods within 10 days of receipt.

(3) If the buyer misrepresented his ability to pay the seller in writing within three months before delivery, the 10-day limitation does not apply. But beware: you should always make a demand as soon as possible in case there is a loophole in the writing.

(4) Goods may not be reclaimed once sold to a third party purchaser as long as the purchaser did not know of the deal between the original buyer and seller. —Linda H. Smith

Planting-time woes in Brazil

Weather is cooperating in most of Brazil, with the exception of the southern region, which is responsible for 45% of corn production, reports Eder Silveira of Weisul Agricola. Argentina, on the other hand, is still in severe drought in its main production areas.

More troublesome is continued lack of credit, Silveira says. "Despite government actions to guarantee credit for agriculture, banks are still not lending. As always, official credit came too late.”

In fact, he reports, machinery dealers are canceling delivery of equipment bought on credit, leaving some farmers unable to plant. "Rumors are that another agricultural machinery plant had about 600 sales canceled for this year and has already announced collective vacations [plant shutdowns].

"Cotton exports are on standby,” Silveira says. "Merchants are not shipping cotton since buyers don't have the needed letter of credit from buyers overseas. There are rumors of some washouts from merchants and confirmed postponed shipments. Without credit, and with payments delayed, producers can't plant as planned.”

Biodiesel rescue

The financial aid rescue package included a one-year extension for the biodiesel tax credit, which was due to expire Dec. 31, 2008. Next year, soybean organizations will need to push for another extension under the new administration.

"The truth is more important than the facts.” Frank Lloyd Wright

"When money is put back into the markets, it will find its way into equities.” Peter Rup, chief investment officer, Orion Capital Management

"In 9 to 12 months, soybeans, cocoa, sugar and wheat will recover. There could be supply disruptions very easily.” Christoph Kampitsch, who helps oversee $1.5 billion in hedge funds at Erste Group Bank AG in Vienna

Top Producer, December 2008

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