Now is the time to be aggressive — not in marketing, financial decisions or crop mix shifts — but in risk management. After years of stagnant prices, the tide has turned.
Tighter carryover of corn and soybeans for 2020/21, smaller-than-expected South American crop production due to dry conditions caused by La Niña and consistent buying of U.S. grain by China are all supporting grain prices.
These factors are creating the rare occurrence of a downtrend supplies and an uptrend in demand. They are also creating a good old-fashioned acreage battle for 2021.
“It appears no matter which crop we plant, corn or soybeans, we have the opportunity to be profitable,” says Jerry Gulke, president of the Gulke Group. “Now we must have the wherewithal to capture the profitability at hand — without getting greedy and ignoring the reasons we farm: to put food on the table, clothes on our backs and to money in the bank. It is nice to see opportunity knocking on our doors again.”
Dive Into Your Numbers
You must consider a laundry list of agronomic, economic and business factors when deciding what to plant in 2021. Standard rotations are critical, but with smart management straying from rotations could earn more dollars per acre.
“Profit planning begins with a new strategic plan each year,” says Chris Barron, Iowa farmer and national financial consulting with Ag View Solutions. “Before market noise influences your decisions, dive into your numbers. Forget last year’s numbers and start fresh with three categories: expenses, production and market price targets.”
When choosing between planting corn or soybeans, Barron suggests analyzing the following factors:
- How many acres will you switch from your normal rotation?
- What is your expected yield for each crop on each field?
- Will you face increased capital requirements?
- Will you need more equipment or labor?
- Will your storage requirements change?
- Are there any agronomic considerations/costs?
- How will the additional bushels change your marketing plan?
“Look at your yield history and see which crop has been more consistent or provided the highest yields,” Barron says. “Subtle changes on your rotation might not impact your operation much but build a checklist to evaluate any likely bottlenecks.”
A key element to consider is your storage capacity. “For every acre you switch from soybeans to corn, your bushels and handling requirement can increase as much as 70%,” he says.
For example, just a 500-acre corn increase can add 70,000 bu. of grain to manage in the fall. That same shift can easily add as much as $125,000 of operating capital/cash.
Educated Agronomic Gambles
With your crop choices, you want to make educated gambles, says Farm Journal Field Agronomist Ken Ferrie. Think through all your agronomic choices and communicate with your team.
“We get to watch a lot of train wrecks, and 90% of those wrecks happen when farmers are changing the track,” he says. “What we usually see is a farm with a crop system everybody is following. Then the guy in charge of marketing and inventory sees a price opportunity and adds 800 more acres of corn. But that change doesn’t flow down through the rest of the group until next spring. The guy selecting hybrids didn’t know and the pest team wasn’t in on the decision. This causes major wrecks.”
If you are swaying from your normal crop rotation, understand the risks and rewards. For example, side effects of corn-on-corn production include a likely drop in yields, excessive residue and a high carbon penalty (large volumes of old crop residue stimulate microorganism populations and cause soil nitrogen to become tied up and unavailable until later in the season).
“You can manage the residue with row cleaners on your planter and you can also apply the needed nitrogen with your planter,” Ferrie says.
Your planting and harvest capacity are also a factor. “If you barely are getting corn planted now, you’ll be giving up bushels with more corn acres by not planting on time,” he says. “And, if you barely get done with corn harvest now, adding another 600 acres will be tough, especially if you are low on drying capacity.”
To ease bottlenecks, he says, plant short-, mid- and long-season hybrids to break up harvest.
Soybean-on-soybean production can be a little easier to manage, Ferrie notes. The biggest challenge is matching up traits and herbicides to manage weed and pest pressure.
In studying piles of yield maps, Ferrie says bean-on-beans typically suffer a 5 bu. to 7 bu. per acre decrease. To compensate for that drop, he suggests planting soybeans earlier than normal. (To read Ferrie’s advice on early-planted soybeans, visit AgWeb.com/high-yield-soybeans).
Lock in Profits
While maximizing yield is the most effective way to improve profit potential, Barron says a grain marketing plan is essential.
“Making sales or using option strategies to lock in a price floor is the only way in practice to take advantage of the opportunity you find on paper,” he says. “Have a strategic plan with rules for locking in profit opportunities to take some of the emotion out of the decision.”
You want a proactive and flexible plan, says Matt Bennett, owner of Bennett Consulting and partner with AgMarket.net.
“In the current environment, writing a hedge-to-arrive (HTA) contract without a large fee makes sense,” he says. “I certainly don’t want to mess with basis much because there’s so much that can happen with basis.”
Be open to making sales on your 2021 crops. Currently, Bennett says 20% sold in new-crop soybeans and 10% sold in new-crop corn are smart targets.
“We are staring profit margins in the face,” he says. “Now we have to decide if we have to roll the dice on making sales this far in advance at prices levels we’ve been begging for the last five years.”
When prices are high, Bennett reminds, there’s more risk of the bottom falling out than going up.
Create, review and update your plan. “At a minimum your cost analysis should be reviewed every 30 days as variables such as expenses, weather, growing conditions and other revenue streams impact your bottom line,” Barron says.
Grain Marketing Watch List
Will these elevated corn and soybean prices stick around? As the focus shifts to 2021 planting, market analysts Matt Bennett and Jerry Gulke suggest watching these key factors.
- South American weather. Rain at the right time could shift production estimates in the growing season, which lasts until U.S. springtime.
- Chinese demand. Will they continue to buy and exceed expectations?
- U.S. agricultural policy. How will President-elect Joe Biden’s leadership play out in global trade?
- COVID-19 impacts. Will concern over further shutdowns and food supply encourage countries to build strategic reserves? Or will a vaccine lessen that concern?
- U.S. dollar value. If the U.S. dollar trends lower — or drop dramatically — U.S. products become even cheaper, which would entice global buyers.
Price is a Great Fertilizer
Since prices peaked in 2012, price direction has been down, says Jerry Gulke, president of the Gulke Group. High prices 2011 to 2013 incentivized production worldwide. The U.S. became a storehouse for the grain surpluses. “Trade tariffs and political rhetoric distorted markets and trading for a time, but the laws of supply and demand were not repealed,” Gulke says. “Rational price discovery is back in vogue again.”
