I’m not sure how it happened, but suddenly the end of August is upon us. Combines are starting to roll in the South, and after an early and record fast start to corn planting, the wave of harvest will quickly be heading north.
I’ve seen several articles posted discussing the questions you should ask yourself as you prepare for harvest. Most of the questions centered around the physical aspects of harvest, taking into consideration varieties planted, location, combine preparation, etc--all great questions and necessary ones ahead of harvest. However, I couldn’t help but think of all of the marketing questions I ask my growers to think about ever year before harvest gets rolling and how important this point in the year is when it comes to building a foundation for a successful marketing approach.
Today we’re going to discuss the points you need to ponder before harvest.
The first thing you have to take into consideration as we roll towards harvest is what you have on hand when it comes to old crop supplies, and I’m not only talking about the supplies in your bin. Grain stored in town or on basis contracts needs to be considered too.
For those of you who have sold all of your grain, congratulations, please skip to the next step. For those of you holding grain, let’s talk. First things first, if you’re in the Western Belt and you think holding your grain into the new crop year is going to end well, you may want to think again. At this point in time it appears as though a record crop is coming. And while these large supplies may not hit all at once, or cause the basis apocalypse that was forecast even a year ago, it is likely to cause a pinch.
Holding on to old crop grain this time of year in an area expecting an exceptional harvest is like playing chicken. You could go to sleep one night with steady or even strong basis levels, and by the next night see 10, 20-or in the case of beans upwards of a dollar fall off of the cash bid. You have options when it comes to locking in basis only on the November or December board if you’re truly bullish and need to get the grain moving, or as we’ve discussed before numerous times you can look at selling the cash and buying a call to protect your upside.
For those of you with grain on delayed price contracts the pain will only further be compounded by the fact that not only will you lose value in your cash bid, you also get to pay a fee for holding on to it! I would call that a lose-lose, so don’t forget to tie up those loose ends from last year before you start a new one.
There are a few times when carrying over grain (on your farm) may work for a grower, in the Eastern Belt this year for instance you may find opportunity. But this would only work if you know you’re going to be short production and definitely will have sufficient space to do so. Make sure your quality is there too, since the only thing worse than cheap corn is corn that is unable to ship. And finally, don’t forget about our cost of carry conversation earlier this year and make sure to fully weigh your risk and your reward.
Next question to ask yourself is how much will you have to move right at harvest time? Take a look at your space, potential yield and how that will work for you from an overall standpoint. If you know you’re going to have more bushels than you can hold getting a plan in place on movement and starting to focus on what your local market looks like is key.
Take a look at the varieties planted, dates planted and what the time frame will be on when the corn will be ready to run. Are there any early harvest premiums available in your neck of the woods? If there are, and you have corn you think will be ready, don’t be afraid to take advantage of them.
Many times over the last few years I have found digging yourself a hole to fill is the best way to approach harvest, especially when early bids are much stronger than their deferred cousins. When I say “dig a hole,” I mean ship the bushels you think you’ll have to move to have enough space first, before filling your bins. In the past I have had growers who knew they would have bushels to move, but the uncertainty over how many left them holding on until the last minute, missing out on the early ship opportunities that have presented themselves. If you think you’ll have 20,000 bushels extra, move those first, then work to fill your space. As you start running you should get a better feel for where your yields are and can sell more accordingly.
When looking to make decisions on selling take a look at your local market and ask yourself what it looks like-and be realistic. If you know you have the best crop of your life and your neighbor has said the same, it is likely supply will be abundant. The same is true if you and your neighbor have the worst crop of your life. Be aware of local demand as well. Are you in a spot with several feeders, is your market export based, full of processors, or none of the above?
Take into consideration expected crop size versus anticipated demand to get a feel for which direction your local market may head. If you’re in the heart of the area impacted by Bird Flu and know your local feeder has yet to repopulate his barn, know basis values in that neck of the woods may be soft. The same is true for those of you who have grown accustomed to big export opportunities in the heart of harvest.
Over the last several years the harvest export book has been huge. This has resulted in exceptional Gulf or river basis values, drying deals, the works. This year’s slowdown in exports will have an impact on values paid, so be prepared for things to be a bit different. Knowing the type of demand in your area, and how strong it may be will help you better spot opportunities and feel more confident in the sales you make.
Now is also the time to figure out what your plan is for the bushels you have to ship at harvest that remain unpriced. In the past you might have been able to put those bushels on a delayed price contract or warehouse receipt and figure if they’re out of sight, they’re out of mind. I have a secret for you though, delayed price is not meant to make you money.
I hate to break it to you, but putting your bushels in the hands of an end user and paying them a fee for holding it each month is not the best way to get ahead. Sure, there are those times when the futures rally shortly after harvest, the basis firms up a bit and you feel like a genius. But putting those bushels away without a plan can be a very dangerous proposition. Take into consideration the amount of money you will likely spend on commercial storage (at even just 5 cents a month you’re spending 25 cents to keep it until March) and look at what it would cost you to sell the cash (lock in the bottom) and buy a call instead. I think you will find March options available for at or less than what you would spend on storage during that same time frame. Sometimes making your first loss your biggest is best, and this is likely one of those times. If you’re uncertain how to approach the market in this way talk to a buyer or broker you trust, and don’t be afraid to ask questions.
Finally, be aware of your deferred cash flow needs, movement needs and what you’re looking at when it comes to opportunities on deferred sales. Be aware you’ll want to core your bins and make plans for doing so accordingly.
Now is a great time to get realistic targets in place, take a look at your overall production, what you would like to accomplish this year, make a plan and stick to it as the year progresses. Above all things do not just dump your grain and forget about it; yes it has been a rough year, but having a plan in place as we move ahead could make the difference between red and black ink on your P&L.
As always, don’t hesitate to contact us if you have any questions. We’re here to help!
You can find Angie on Twitter at @GoddessofGrain or email her.
