Cash prices

Farmers Face Budget Squeeze And Balance Sheet Challenges—Echoes Of A Decade Ago

Tue, 30 Dec 2025 21:12:38 GMT

If heading into 2026 feels a little like déjà vu, you’re picking up the same vibes Chris Barron, president and CEO of Iowa-based Ag View Solutions, is experiencing. He believes the next couple of years will echo the last big downturn farmers weathered a decade ago.

“It’s kind of scary that 2025, ’26 and ’27 look essentially like a repeat of 2015, ’16 and ’17,” Barron says. “If you remember that time frame and made it through, buckle down because I think we’re going there again.”

He says one of the clearest signals farmers are about to experience a repeat of a decade ago is based on the 2026 cost-of-production data from Ag View Solutions’ clients, who are based in 23 U.S. states and three Canadian provinces:

Soybeans: About $11.87 per bushel based on a 65-bu. average yield
Corn: About $4.69 per bushel (before basis) on a 223-bu. average, with many growers needing at least $4.85.

Some growers raising non-GMO seed beans or getting premium contracts can still make soybeans compete. But for many farms, soybeans are the weak link in the current economic cycle.

Right now, Ag View Solutions clients are expected to plant roughly 62% of their acres to corn and 38% to soybeans for 2026 — essentially the same as 2025. Barron says he doesn’t expect many acres to shift away from this mix to more soybeans “unless something really changes.”

Given current price relationships and crop insurance guarantees, Ag View Solutions data shows about a $50-per-acre advantage to corn over soybeans for the year ahead. Even if the dollars trend lower, he says corn often pencils out better because of gross revenue and risk management tools.

More Cost Pressures Heading Into 2026

It’s no secret production costs are increasing heading into the next season. Some of the key factors include:

Overhead costs (what Barron calls ‘”return to management”) for family and employee expenses, including phones, fuel and business-paid personal expenses, are up nearly 5%. After the past year or two of what Barron describes as hard belt-tightening, he says deferred spending is “snapping back” at higher levels.

Land rents are holding mostly steady, supported by higher property taxes and outside investor demand.

Interest expense is climbing as operating lines grow.

Fertilizer costs are a mixed bag. On corn, fertilizer costs are up about 7%, even though Barron believes most farms are staying with removal-rate applications. On soybeans, he says fertility costs will be lower, mainly because growers are putting less fertilizer on their bean acres and leaning harder on corn nutrients.

Machinery and equipment costs are also inching higher for the year ahead.

This Is Not A Repeat Of The 1980s

Despite the “red” many farmers will see on their spreadsheets in the year ahead, Barron says the current period is not a repeat of the 1980s farm crisis, for two key reasons:

Farmer equity is strong. Debt-to-asset ratios remain healthy for many U.S. growers, even if cash is tight.
Many farmer exits are voluntary. Today, many farmers are choosing to retire or scale back in order to protect equity.

Barron offers a recent example: “I got a call the other day on 7,000 acres, a 45-year-old farmer saying, ‘I’m not going to do this anymore. I’ve got a $5 million equity position, and I’m not going to go for a couple more years and chew away another million dollars. I’m just going to be done.’”

Strategies for the Current Climate

To survive — and potentially thrive — in this “repeat” cycle, Barron suggests focusing on these four areas in the year ahead:

Do the high-dollar work. Barron says the “$500-an-hour” work is crunching numbers in the farm office. “Know your true costs, stress-test budgets, analyze each profit center. A few hours spent with good numbers can be worth far more than another round in the tractor,” he says.
Protect yield. He advises against cutting seed, chemistry or other inputs that protect or enhance yield “just to save a few cents per bushel.”
Right-size your operation. Barron says some of the most successful turnarounds he’s seen with operations lately have come when farmers “right-sizes” — they’re doing less, but doing it better — instead of trying to be everything to everyone.
Use collaborative models. Barron says he is seeing more farmers share equipment and labor with their neighbors to spread fixed costs without extra capital.

Opportunity Will Still Knock

During a Top Producer podcast, Barron told Host Paul Neiffer that the tight times ahead will create new land-rent opportunities for some farmers who want to expand. What commonly happens when margins get tight is some farmers pull back, and that’s when expansion possibilities open up for others.

“We’ve had numerous clients call us about opportunities to rent land and not like in small amounts. When times are tight and when things aren’t good, that’s when these opportunities present themselves,” he says.

Barron’s message for those farmers in expansion mode: have your numbers, working capital and lender relationships in order now, so if the right block of ground comes available, you can move quickly and confidently on it.

If you’re interested in the ROI spreadsheet Barron’s team uses to analyze market trends, email cbarron@agviewsolutions.com .

Hear the complete discussion between Barron and Flory on Farm Journal TV . Also, you can listen to the Top Producer podcast discussion between Barron and Neiffer at the link below:

‘Farmers Can’t Outyield the Balance Sheet Anymore’

Fri, 12 Dec 2025 22:39:11 GMT

Randy Dowdy, high-yield corn and soybean farmer and agronomic consultant, paints a stark picture of the economic pressure bearing down on American farmers.

Fresh from a visit with customers, Dowdy says the same three questions dominate almost every discussion he had with growers:

Where can we cut costs?
Where do we have to spend money to stay in business?
How do we service existing debt when margins are razor thin?

Even with strong yields this year, many of the farmers, he notes, “could not outyield the balance books.” Commodity prices have not kept pace with rising costs, he says, leaving farmers struggling to keep their operations in the black.

Costs Have Soared, Partly Due To Regulations
Dowdy contrasts his early years in farming with today’s reality. When he started farming in 2008, his first tractor cost between $150,000 and $175,000. Now, he says, a similar horsepower tractor “can run roughly three times that dollar amount.”

He traces a significant part of that escalation to emissions and environmental regulations that began ramping up in the late 2000s. He recalls an initial price jump, followed by annual increases of 6% to 8% since then, compounding the burden on farm finances. The complexity that comes with the machinery systems, he argues, also has stripped farmers of their ability to repair their own equipment.

“You can’t work on [equipment] without a computer. Even the technicians can’t work on them without a computer,” he mentioned on a recent AgriTalk segment.

Noting not all of the price jump is due to emissions controls, Dowdy believes the regulatory wave gave some manufacturers cover to raise prices.

Tension Between Policy and Reality
Dowdy’s comments on AgriTalk came following a White House roundtable on Monday tied to a new $12 billion “bridge payment” plan . President Donald Trump said his administration will move quickly to ease environmental requirements affecting tractors and other farm machinery , arguing the changes will lower sticker prices and simplify repairs.

On Wednesday more news followed with Ag Secretary Brooke Rollins and Health Secretary Robert “F” Kennedy Jr., announcing a $700 million initiative for regenerative agriculture .

Dowdy said he’s not opposed to supporting agricultural niches — all of the profitable corn and soybean growers he and Total Acre business partner David Hula met with recently have some kind of specialty angle.

“If there’s a little help for those guys, I don’t have a problem with it. But at the end of the day, the row crop farmers are where the help needs to be,” he notes.

Part of the help has to do with machinery costs. He highlighted cotton pickers as one example.

“The cotton industry’s got one manufacturer that I’m aware of that makes a cotton picker. One. And it’s $1.2 million,” he says. “Where’s the competition that helps make that thing affordable?”

Dowdy doesn’t claim to have all the answers, but he would like a “seat at the table” to have a candid conversation with policymakers and regulators focused on one core goal: bringing equipment and input costs back within reach so farmers can keep their operations viable.

“I’m all for the farmer,” Dowdy says. “If the farmer wins, everybody wins.”

Dowdy and Hula address farmer profitability needs in more detail in their new Breaking Barriers With R&D podcast, available here:

You can also catch the AgriTalk discussion between Dowdy and Host Davis Michaelson below:

Why Used, Late-Model Equipment Is Surprisingly Strong, and Get Ready for a Packed Fall Auction Season

Thu, 07 Aug 2025 15:08:43 GMT

Casey Seymour and Machinery Pete say late-model, low-hour equipment values are stabilizing and even trending up as we get close to kicking off the used equipment auction busy season.

Pete says a few recent auction transactions display the value “firmness” bubbling up on like-new machines:

(Machinery Pete Facebook)

At a dealer auction in North Dakota this week, a 2023 New Holland T8.410 tractor (521 hours) went for $237,000. That’s a record-high auction price, according to MachineryPete.com historical data.

(Machinery Pete Facebook)

At the same North Dakota auction, a 2023 New Holland L334 skid steer with only 227 hours sold for $49,000. That’s another record-high auction price.

At a Steffes Auction Group sale in West Fargo, N.D., a 2023 John Deere 9RX 640 tractor sold for $477,278. The average auction price for that machine sits at $488,250. Taking into account low commodity prices, Pete says that’s not a bad price given the uncertainty in the farm economy.

“There’s different ways to see things,” Pete says. “That average auction price has remained flat, but if you look back two years the average auction price was about $597,000. So last year was the humongous drop down to $488,250, and then so far this year its kind of holding.”

Besides tracking used equipment values, Pete likes to look at land values and what he calls “the toy factor,” which are sales of vintage, unique show tractors that farmers love to collect.

Meanwhile, Seymour is anticipating a fall auction season with “big activity” as usual, but he thinks it will look a little different once we get into the thick of it.

“You’re going to see the same level of consignment dealership sale activity, but it’s going to be heavily mixed in with farm and retirement auctions,” he says.

Seymour and Peterson agree auction companies must continue to step their marketing and social media games up. There will be so many auctions taking place this fall that grabbing buyer attention will be absolutely critical for auctioneers.

“I guess that’s what keeps us on our toes, things don’t stay the same, they keep changing, even in our business,” Pete adds. “I mean, yeah, bring it on. That’s always been my — I try to keep that mindset despite being the gray-haired, grumpy old guy on the front porch.”

The Rest of the Episode

Aaron Fintel, used equipment specialist with 21^st Century Equipment and founder of High Plains Wholesale, tells Seymour many farmers put off upgrading the combine for the last two years. Now it seems like everyone in his area is looking for a used combine.

“We’re getting to that point where guys haven’t done anything, and now they kind of have to,” Fintel says. “Combines are hot; combines $450K-plus are an absolute iceberg waiting for a big white boat to hit them. But $450K and under? You’re getting some action.”

He also is seeing more farmers buying based on model year over engine hours, which is a shift in buying behavior.

Shawn Hackett, president and CEO, Hackett Financial, gives an update on the price of corn, which is down in the sub-$4 range currently. He says we are in the middle of the third rainiest growing season over the past 50 years.

“You would think that we would get record yields and a record crop, and that’s what everyone is going with, but I wish it were that simple,” Hackett says. “It’s not that simple.”

And John Deere’s Bergen Nelson, go-to market manager – harvesting equipment, shared what he is seeing in the world of harvesting machinery and technology.

Head over to YouTube to watch the full episode. Hit the “Thumbs Up” button to “Like” the video and click on the “Subscribe” button to get a notification when a new episode drops.

Your Next Read: Used Equipment Values Have Stabilized in 2025, But the Surprising Trend Might Not Last

Ag Economist Offers Farmers What He Calls 'Some Contrarian Advice'

Fri, 17 Jan 2025 19:27:56 GMT

With president-elect Donald Trump set to re-enter national office on Monday, Scott Irwin offers row crop growers a word of caution and what he describes as a bit of contrarian advice.

“I know farmers have had some optimism about recent grain prices, but I think it’s a good time to dip toes in the water and consider getting some downside price protection for the 2025 crop,” Irwin told Farm Journal during the Illinois Soybean Association Field Advisor Forum earlier this week.

“It’s a little hard to do that when you’re pricing at what would be a full cost loss, but I think that potential immediate downside risks of trade problems we could be heading into could hit both corn and soybean prices moving forward really hard,” he adds.

In analyzing corn and soybean prices, Irwin is predicting corn at $4 per bushel and soybeans at $10 per bushel for 2025. Furthermore, while net farm income hit a peak at over $180 billion in 2022, his latest projections for 2024 show a significant drop to around $40 billion.

The University of Illinois agricultural economist says that procuring some downside price protection is his No. 1 recommendation to farmers for the short-term.

Will Trump Impose Tariffs?

Weighing on Irwin’s mind is what Trump will do regarding trade, namely whether he will impose tariffs on any or all of the United States’ three largest trading partners - Canada, Mexico and China.

Trump has said he will impose a 25% tariff on imports from Canada and Mexico until they clamp down on drugs, particularly fentanyl, and migrants crossing the border. He has separately announced the U.S. will impose tariffs from 10% to 60% on goods from China.

“The one thing I learned thinking about economic implications during Trump 1.0 is that when he makes a pronouncement on economic policy, you better take him seriously,” Irwin says.

A Look In The Rearview Mirror
U.S. agriculture has some recent history of what could happen if tariffs are imposed and trade partners decide to implement tit-for-tat retaliations.

Irwin specifically referenced China’s decisions during Trump’s first administration as an example. When the U.S. imposed tariffs on China in 2017-18, the country retaliated on U.S. soybeans and took its business to South America, namely Brazil.

The financial fallout for U.S. agriculture was significant. USDA Economic Research Service data show the United States exported $12.2 billion in soybeans to China in 2017. However, in 2018, U.S. exports to China fell to $3.1 billion, a 75% decrease.

“A lot of people downplayed that experience because, honestly, it didn’t last that long,” Irwin recalls. “The worst of it was only about six to eight months.”

He attributes the short duration partly to the crisis China went through at the time with swine flu, which decimated pig herds and required the company to undertake extensive herd rebuilding. In the process, China was unable to source enough soybeans from Brazil to meet demand.

“Unless China gets a new swine flu disease that’s not going to bail us out this time,” Irwin says.

China Is Already Changing Course
In response to tariff concerns, Chinese oilseed importers have already shifted gears to purchase competitively priced Brazilian soybeans.

The move is hitting U.S. suppliers towards the end of their peak marketing season in January, according to a Reuters article published on Friday (Chinese buyers switch to cheaper Brazilian soybeans ) .

The Reuters article says the move is likely to leave the U.S., the No. 2 soybean exporter after Brazil, with 10.34 million metric tons of beans by the end of the 2024/25 marketing year in August, the highest in five years, according to U.S. Department of Agriculture estimates.

‘Something Always Happens’
Regardless of his concerns about trade, Irwin says it’s important to keep some perspective on what he describes as a normal price cycle for agricultural commodities currently.

“Don’t get too pessimistic ever about prices or too optimistic, that’s my attitude,” he says. “Something always happens eventually (to send prices up or down).

“This summer, we could get a big drought here in the U.S., and all of a sudden, grain prices are at very profitable levels,” Irwin says. “Or it might take us several years to grind our way out of the trade problems that I think we could be facing, and that’ll be a lot tougher environment. But even if that happens, it won’t last forever, and that’s, I think, a very important mindset to have.”

Your Next Read: Treasury Nominee Bessent Defends Trump Policies in Testimony; Promises to Press China to Resume Ag Purchases in Phase 1 Agreement

Market With Purpose: Set Achievable ROI Goals

Thu, 10 Oct 2024 12:00:00 GMT

In times of tight margins, every purchase must have a purpose with ROI top of mind. As you optimize your equipment, crop inputs, farmland and business intellect for the year ahead, take the time to plan your work, and then you work your plan.

In keeping with the “purchase with purpose” theme for the week, let’s talk about farming with purpose and marketing with purpose.

I’m going to start with farming with purpose. More than a few years ago, I wrote a booklet titled, “Making the Family Farm the Family Business” that included writing a mission statement, vision statement and values statement.

Too many farms try to operate without those things. Without these guiding principles in writing, framed and hanging on the wall, the risk is you’re farming just to keep busy — the least rewarding kind of work. With a mission or a destination of what you want your business to be, and an understanding of what it could be, the work takes on purpose.

Let’s also consider the idea of marketing with purpose. It seems too many farmers view a cash grain sale as a “give up.” I can’t believe how many times I’ve heard, “I guess the price won’t go any higher, I might as well sell.” Or how about this one: “I guess I better sell before prices drop even more.”

A cash grain sale should be a celebration — your opportunity to cash in on the efforts of an entire growing season. If you have a long-term business plan that includes long-term goals for your business, and if making cash sales now helps to advance your business toward reaching those goals, cash sales can (and should) be a celebration.

“When a single year’s marketing effort is tied to longer-term goals, you’ll develop a constructive, disciplined approach to selling each year’s production.”

If reaching a marketing goal allows you to reach a higher goal in your overall business plan, you’ll look at marketing as a single step in your business and not an end-all or terminal step. When a single year’s marketing effort is tied to longer-term goals, you’ll develop a constructive, disciplined approach to selling each year’s production.

Perhaps the easiest way to market with purpose is to set return-on-investment goals. If you know a 5% return on 20% of expected production will allow you to make progress toward the long-term goals of your business, it should be easy to sell 20% of expected production at a 5% ROI. And it should be easy to make the sale even if prices are trending higher because there is a reason for the sale. Write it down and have the discipline to follow through.

Write the mission, vision and value statements. Write goals for your business (and your business partners). Write a marketing plan that will move your business toward achieving long-term, high-level goals. Market with a purpose.

Quick Outlook

Most areas are handling more corn and soybean bushels than ever before. Your first priority is to keep you and all those around you safe. Priority No. 2 is to have a positive return on 2024 crops — probably the most expensive crops you’ve ever grown. Set a reasonable ROI goal and enter price orders to capture opportunities.

Your Next Read: You Need To Invest With Intent To Create Your Legacy

How Many Acres of Corn Will Be Planted This Year?

Mon, 10 Jun 2024 14:10:47 GMT

Market Commentary for 6/7/24

The first crop conditions report was released this week, and it indicated the crop is starting off in really good shape. Additionally, the market senses the corn crop will get planted, but how many acres will there be?

Corn acre estimates for the June 28^th report are ranging between 87 million and 93 million, which is a very wide spread. Assuming 180 bushels can be raised on each acre, that is a 1-billion-bushel production difference.

A 1 billion bushels change in carryout could mean a 2.2 billion carryout next year and would likely send December corn below $4.00. However, having only a 1.2 billion carryout could send December corn to $8.

This means the June 28^th report will likely be the most important USDA report of the year.

Can Trendline Yield Still Happen?

Many market participants are saying a trendline yield is no longer possible; however, I think it is way too early to say that. Yes, some of the crop was planted a little slower than optimal, but currently only 5% of cropland is in a drought. That is 5% lower than two weeks ago, and 30% lower than this time last year. Timely July rains will be the key.

Statistical analysis suggests there is a 50% chance yields will be above or below a 2.5% drop from trendline, which would mean 176.4 per bushel yield. This comes from looking back at the past 30 years when the corn crop gets to at least 70% planted. So, at this point it could go either way. There could be timely rains in July and August, like in 2014, and a new record yield may happen. Or there could be widespread drought conditions which would drive the national yield much lower.

The following balance sheet for corn shows the current 90 million acres the USDA reported in March. I have added columns for 87 million and 93 million acres (in blue) as well as to project several different yield scenarios from current trendline to lower values (pink)

In the balance sheet, I am assuming there will be an increase in feed demand and exports by 100 million bushels total for the remainder of the 2023 marketing year (green).

If 90 million acres are planted, and there is a 2.5% drop in the trendline yield to 176.4 then corn futures are probably close to where they need to be right now.

However, if only 87 million acres get planted the upside potential in the market is really strong. Higher prices would likely lead to the rationing of demand (yellow). This means July rains will be critical to maintain adequate supply.

If there are significantly more than 90 million acres planted, then there is more room in the balance sheet for lower yields.

Bottomline

We won’t know how many corn acres were planted until 11 AM CST on June 28^th. However, based upon conversations with farmers and the economics of growing corn around the country, I suspect more than 90 million corn acres will have been planted.

If you would like to understand more about how to protect downside risk and use storage to increase profits for your operation, please reach out to me at jon@superiorfeed.com .

Want to read more by Jon Scheve?

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Is Now A Good Time To Sell Some Corn?

How Storage Added Over 70 Cents To My Bottom Line This Year

Was The May USDA Report Bearish?

How I Used Storage and Risk Management Strategies to Get Nearly $6 for My 2023 Corn Crop

Is Now A Good Time To Sell Some Corn?

Mon, 27 May 2024 15:31:20 GMT

Market Commentary for 5/24/24

Wheat is the market leader right now. Dry weather throughout Russia, Ukraine, and potentially Australia has global wheat traders on edge. Some market participants are suggesting wheat may be removed from the feed equation and replaced with corn around the world, possibly sparking a corn rally.

Wheat / Corn Spread

Wheat was trading at a $2.32 per bushel premium over corn this week, which is much wider than normal as this chart shows over the past 15 years.

While the spread could go wider, history suggests that it is unlikely to be by much or for very long. Even when Russia invaded Ukraine, wheat traded significantly wider for only a short time. So, does that mean wheat will drop in value because harvest is approaching? Maybe, but corn could also rally because of demand or along seasonal trends.

Corn Seasonal Trends

The chart below shows the average seasonal price of corn over the last 15 years in blue and the last 5 years in green.

Both lines are similar and suggest that the highest price for corn tends to be in late May and early June.

However, digging deeper the corn price each year doesn’t look exactly like the 5 and 15-year averages. Here are the corn prices for 2019-2023.

In 3 of the 5 years, December corn finished the year lower than ANY value traded in May or June.

From 2014 to 2018, December corn finished the year below ALL May and June values EACH year as seen in the chart below:

Between 2009-2013, December corn finished the year lower than ANY May or June values in 3 out of 5 years seen here:

Basically, in 11 of the last 15 years (73%), December corn finished the year lower than ANY value traded in May or June. The only years it didn’t were 2010, 2012, 2020, and 2021. So based only on historical trends, it is much more likely that selling December corn on any day in May or June will be a better decision than waiting until the fall to sell.

Comparing Corn and Wheat

In the four years when corn traded higher in December versus May and June, the wheat to corn premium was only over $2.20 per bushel in two years, 2010 and 2020. Both years were outliers for corn though, with corn hitting its low in the summer and rallying over the next few years. In 2010, there was decent weather until very late summer and 2020 followed the covid shutdown.

One similarity between the two years was a significant drop of more than 750,000 acres of planted corn from the March intentions report to the June 30^th plantings report. A drop that large has only happened in 3 of the last 15 years, 2010, 2019, and 2020.

Weather

Only 10% of the US corn crop is currently in drought conditions, a 2% drop from last week. This is down significantly from recent years where over 25% of US corn was experiencing dry conditions at this point in the year.

Bottomline

July weather throughout the corn belt will ultimately be the deciding factor in corn values and price direction. The June plantings report could also impact the market as well.

Historical trends suggest selling some corn over the next 6 weeks may be a prudent risk management strategy, especially if there is a rally during that time. And while past performance is never indicative of futures results, there is nearly a 75% chance that making a trade on ANY day in May or June will be a better decision than waiting to price corn in the fall.

If you would like to understand more about how to protect downside risk and use storage to increase profits for your operation, please reach out to me at jon@superiorfeed.com .

Want to read more by Jon Scheve?

How Storage Added Over 70 Cents To My Bottom Line This Year

Was The May USDA Report Bearish?

How I Used Storage and Risk Management Strategies to Get Nearly $6 for My 2023 Corn Crop

There Is A Cost To “Free” Storage

Is The US Tight On Corn Or Are Farmers Just Not Selling?

How Storage Added Over 70 Cents To My Bottom Line This Year

Mon, 20 May 2024 12:57:38 GMT

Why Storage Pays

In a previous article I shared when and why I set basis on my farm. That prompted several questions from farmers on the process I used.

For background, in 2023 I bought puts on much of my anticipated production. I also had some sales on and several options trades that gave me added profit. My final futures value was $5.54 against the December contract. This floor price was mostly set and secured by February 14 of 2023 as this chart shows:

That Seems Like a Lot of Work

A farmer asked me why I do all the work to hold grain after harvest if my floor value was $5.54 and futures at harvest were under $5?

The reason is that basis at harvest in southeast Nebraska picked up on my farm was trading -35 cents to the futures values as the chart below for October shipment shows:

That means, if I had sold my corn to be picked up at harvest, I would have received $5.19 cash value ($5.54 futures - .35 basis value).

Usually, the worst basis of the year is during harvest in October because many farmers don’t have enough home storage and need to move their grain to commercial facilities where space is limited. In my area -35 is common at harvest time. However, once harvest is over, it is very difficult for end users to get farmers interested in moving grain, especially if futures values are low.

As the chart above shows, shortly after harvest was over end users increased their basis bids to incentivize bushels to move.

Which Month Do You Sell Futures In?

Another farmer asked me if I make my sales against the December contract and then roll them forward to a future month. Or do I just pick the month I plan to sell grain in when I make my original sales.

Usually, I will pick the December contract because the spread to other months historically works in my favor as the year progresses. However, in some years market conditions indicate I should place the trades in the contract months I plan to move the grain earlier in the year.

Just like how futures and basis have their own market movements, so do the spreads. In some years, spreads will be widest in the spring and others it is in the fall. Last year, I waited until late fall and captured 37 cents of premium to store grain waiting for basis opportunities as shown in the chart below:

What About the Interest Cost?

I am often asked if I account for the added interest to store my corn that long?

The answer is it depends what I’m comparing. For someone holding unpriced grain in their bin until the day I set basis, then both trades have the same interest costs, and the issue isn’t relevant.

However, if I’m comparing my sales and storage price to someone who did not store their grain at harvest, then it’s extremely important to analyze the interest cost to store grain.

In October, the futures value for corn was averaging $4.95 and the basis was trading at -35. This means the corn in my bin had a $4.60 cash value. To calculate the interest cost to hold the grain, I took the $4.60 cash value of corn x 9% interest for a short-term operating note divided by 12 months. This gave me a 3.45 cent per month cost for storing grain instead of selling at harvest and lifting my hedges.

That means storing my corn in the bin for 7 months until May, instead of selling at harvest, cost me 24.15 cents (3.45 cents x 7 months).

Why Do You Use The $4.60 Cash Price and Not $5.19?

I use the current cash value because my hedge account will have already captured the profit from the decreased futures price of $5.54 futures I have sold to the $4.95 it was trading. I can take that profit out of the hedge account, if I want, and pay down any short-term loans I have. Also, by using cash it accounts for where basis values are and where I believe they might go as well.

What Was The Outcome?

In October, the spread as noted in the chart above, to move my sales from December to May was paying me 24 cents, which would have covered almost all my interest cost. However, I suspected the spread could move wider, considering the large harvest the US was having, so I waited until late November to move my sales from the December contract to the May contract. My hunch turned out to be correct, and I pocketed 37 cents to hold the grain until May, which more than covered the 24.15 cent interest cost to store the grain.

Basically, through market carry I am paid the equivalent of a 13.5% annualized return (37 cents / 7 months = 5.2 cents x 12 months = 63 cents / $4.60 = 13.5%). This means even with a 9% loan I made a 4.5% annualized profit using the bank’s money. And the bank was happy about making the loan. It was a win-win scenario for both of us.

I have heard that some people suggested that for those who didn’t have to borrow money, it would have been better to sell the grain at harvest and put that money into a CD for 5% interest. Clearly making 13.5% is significantly better than 5%.

Plus, these calculations don’t even include the basis appreciation profit from harvest to April. I made another 35 cents in profit from that portion of the trade, which is the equivalent of another 13% of annualized return.

In total, I collected 37 cents in market carry and 35 cents of basis appreciation for a total of 72 cents over 7 months. If I didn’t have a bin payment or operating note, it means I made the equivalent of a 26% annualized return on my investment over 7 months. And for the farmer who does have operating notes and bin payments the market would have paid for both this year.

Farmers can make a lot of additional profit through on-farm storage if they understand how the market encourages them to do so. With current corn prices where they are, it is more important than ever that farmers take advantage of these kinds of opportunities that can help them maximize their profit potential.

If you want to learn more about how to use on-farm storage to turn profits like this, reach out to me at jon@superiorfeed.com .

Want to read more by Jon Scheve?

Was The May USDA Report Bearish?

How I Used Storage and Risk Management Strategies to Get Nearly $6 for My 2023 Corn Crop

There Is A Cost To “Free” Storage

Is The US Tight On Corn Or Are Farmers Just Not Selling?

History Does Not Favor a Corn Rally in April

There Is A Cost To "Free" Storage

Sun, 28 Apr 2024 16:12:01 GMT

Market Commentary for 4/26/24

Last week I mentioned that the basis and spreads between futures contracts suggested the market wanted grain now and not later.

That prompted a question from a farmer who asked what they should do with the grain still in the bin. They told me they weren’t happy with the flat price value of grain, but they had time to move their grain while it was raining. They wanted to know if they should take advantage of free storage programs that their end user in their area was giving them and move their grain now.

I told them that if it were me, I would ABSOLUTELY NOT do that.

Why?

The whole reason the basis is improving, and the spread is narrowing, is because end users can’t get corn into their facility. Delivering corn into “free” storage programs only helps end users procure bushels when they are desperate. These free storage programs hurt all farmers by artificially lowering prices when they should be strong.

There Is a Cost To “Free” Storage

If you don’t believe me, compare the basis value bids of a facility offering or has offered free storage this season. When I analyzed different facilities throughout the US this past week, I found that their immediate delivery bids were at least 5 to 10 cents lower than their bids for next month’s delivery. This is the true hidden cost of “free” storage.

For farmers raising 200 bushels per acre, this “free storage” costs them up to $20 per acre at 10 cents per bushel. For farmers with 500 acres of corn, “free” storage is potentially costing them up to $10,000 this year.

I have written about why farmers shouldn’t participate in these programs before. A lot of farmers reached out to me after those sharing their frustration with the farmers who use these free storage programs. Several mentioned they even explained how these programs hurt all farmers to their friends and neighbors who use the programs. Sadly, most of these farmers said the farmers they spoke with just don’t care.

While this is frustrating to hear, I would encourage everyone to keep talking about how these programs are bad for farmers. If we could all work together to stop using these programs, maybe all farmers could be getting better prices. With breakevens not going down as quickly as corn prices are going down, we all need to be adding every 5 to 10 cents profit to our bottom line that we can.

If you would like to discuss the options available to you with your remaining stored grain, please reach out to me at jon@superiorfeed.com .

Want to read more by Jon Scheve?

Check out recent articles:

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Preventing The Use Of “FREE” Storage

Tue, 06 Feb 2024 16:15:06 GMT

Market Commentary for 1/26/24

Preventing The Use Of “FREE” Storage

Once again “free” storage is being advertised throughout the corn belt. While some also call it “price later opportunities,” “delayed pricing” or “DP” it refers to when farmers sign over their grain to an end user or commercial facility, and then wait to price the grain later, hopefully at higher values.

On the surface, “free” storage seems like a win-win for farmers and end users or buyers. These “free” storage programs are a great way for end users to procure grain supply during the winter. And farmers can move their grain now when they are not busy, and price later during a potential rally. Unfortunately, “free” storage ends up costing ALL farmers, those using it and those that do not.

Why Does “Free” Storage Hurt All Farmers?

When end users offer this program, it is usually because they are having difficulty procuring enough grain to meet their immediate needs. Typically, “free” storage offerings spur a rush of quick ship grain and helps end users get through a month or two of difficult origination. However, this ultimately keeps basis prices artificially lower than the bids end users should be willing to pay for grain right now. In other words, why would end users push their basis bids up when they are getting plenty of grain delivered?

How Much Are Prices Impacted?

Basis level suppression from “free” storage could be 10-20 cents in an average year, but it might run higher depending on local conditions. For example, two years ago there were production issues in central Missouri and North Dakota, and basis values after harvest in those areas were 50 cents higher than normal. Similarly, in the previous year the southwestern part of the corn belt experienced a lot of dry weather, and basis values there were $1 per bushel higher than normal.

Why Do Basis Levels Fluctuate So Much?

Basis usually goes up when farmers quit selling because they either run out of grain to sell or they think prices will go higher and hold their grain. Therefore, end users need to incentivize grain movement and sales to their facility by increasing basis. Conversely, end users will then decrease basis bids when there is plenty of supply available.

This means when farmers are not using “free” storage programs, end users need to increase basis values to entice farmers or commercial facilities to move grain. Those higher bids mean increased prices for ALL farmers in that area and potentially the surrounding areas.

But “Free” Storage Offers Several Conveniences to Farmers

True, some farmers argue that with “free” storage they do not have to worry about their grain’s condition in the bin or when to move it. Plus, they get the flexibility of being able to sell at potentially higher prices down the road.

Again, these conveniences seem good on the surface, but the farmer has limited their pricing opportunities. These farmers are now committed to the prices the end user is offering, and that usually means current month basis bids that run at lower values than forward bids. This “forced” discounted price is part of the cost for the “free” storage.

Another problem with “free” storage is that when farmers place a sell order on their “free” stored grain, it is usually for a cash price sale. This allows end users to know the price many farmers are willing to sell at, because they can see all the pricing orders that are placed. If many farmers pick the same general price point to sell, end users can fade their basis bids back as that cash price point approaches. This basis fade may only be 2-5 cents, but the “free” storage program just cost farmers in that area a little more money.

Just A Few Farmers Using “Free” Storage Hurts All Farmers

It only takes about 20% of farmers in an area to commit 50% of their production to “free” storage for end users to procure about a month’s worth of needed production. This can bridge end users until the next round of farmer selling, often right before planting season, and suppress prices for all farmers locally. Plus, these lower basis values can trickle beyond the surrounding area and impact farmers in markets further away.

Nothing Is Ever “Free”

In grain marketing there seems to always be hidden costs. And, for “free” storage programs the hidden costs hurt ALL farmers not just the ones that participate.

So, encourage your neighbors to not use “free” storage. Following is a list of what to mention:

End users likely offer it because it is beneficial to them, not the farmer
No end user would offer something for free if it did not profit them in some way
“Free” storage users likely contribute not only to price suppression for themselves, but all farmers in the area
Using “free” storage means a farmer will likely be locked into using an end user who knows what price farmers are willing to sell their grain, and could artificially lower prices
The minor conveniences come at likely a huge cost to both them and YOU

Remember only YOU can prevent the spread of “free” storage.

If you would like to learn how you can avoid using “free” storage or delayed pricing and still maximize your profit potential, reach out to me at jon@superiorfeed.com .

Want to read more by Jon Scheve? Check out recent articles:

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Don’t Give Away Your Risk Premiums

Mon, 22 Jan 2024 12:26:05 GMT

Market Commentary for 1/19/24

There is simply too much corn in the US this year. Production issues in Mato Grosso in April or May or in Iowa and Illinois in July are most likely the best chance for significantly higher prices.

Don’t Give Away Your Risk Premiums

Growing specialty corn (i.e. seed, white, non-GMO, high oil, silage, etc.) is popular with some farmers because there is usually an added premium to grow any corn not used for feed, export or ethanol. There can be several reasons for the premium:

Proximity to a specialty corn buyer
Risk of a potential yield reduction
Increased weed treatment and/or insect cross-pollination
Need for additional storage for identity preserved crops
Harder to replace if there is a production issue at a local level

Most farmers do not want the hassle, or risk, of raising these crops. That is why there are big premiums. If everyone was doing it, there would not be a premium.

While there is some opportunity to increase profits raising specialty corn, I have noticed many farmers make marketing decisions that leave money on the table. Let me explain.

Most farmers set a cash price for their specialty crop first. Often, they will get excited about a much higher cash price during the winter or spring months when traditional #2 yellow corn prices are suppressed. They may see an 80-cent premium to yellow corn and want to lock it in early because the cash value looks so much better.

The problem with this strategy is the farmer is only looking at the cash price and not the risk for raising the specialty crop. Instead, I prefer to subtract the premium of the specialty crop out and then apply the basis value of yellow corn to compare. If I would not sell yellow corn at that price, then I would not sell my specialty corn at that time, even with the added premium.

When outlining a marketing strategy, I recommend that farmers, who raise more than one type of corn, to pool together all their specialty and regular bushels in one “marketing basket” when looking at the underlying futures position. Then when a futures price meets my profitability goal criteria, I would sell.

I would also suggest using futures to hedge both kinds of corn, so I have flexibility to apply any futures sale on my crops later based upon shipping and logistical needs. For example, this could be on yellow corn that needs to be delivered at harvest due to limited storage because of increased specialty crop storage needs.

Too often I see farmers, who do not have any of their #2 yellow corn sold by harvest, end up selling it for very low values or paying a lot of commercial storage because they were only focused on selling the specialty crops. These farmers then miss opportunity on their #2 yellow corn because they didn’t plan ahead for all their storage needs.

I prefer to think of the specialty crops in my marketing plan as a way to get additional basis premium for the increased risk to raise the crop. At the end of the marketing year, I can add up all the corn futures sales together to determine my average. Then I can add the specialty crop premium to each line item. When all the corn raised by a farm operation is based on the same futures, it is easier to calculate and compare the basis premium. In the end, all that matters is both crops were profitable.

Bottomline

A good rule of thumb for me...if I would not set #2 yellow corn futures price right now, then I would not be pricing my specialty crop futures either. Raising specialty crops can be risky, so I do not want to give away any risk premium just because the cash price looks good today.

If you would like to talk about ways to better sell your specialty crops, reach out to me at jon@superiorfeed.com .

Want to read more by Jon Scheve? Check out recent articles:

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Why I Like Margin Calls

How Did Using Puts For Price Protection Actually Work Out For Me?

Mon, 06 Nov 2023 21:18:39 GMT

Market Commentary for 11/3/23

Corn closed the week 3 cents lower than the week prior. In 65 of the last 67 trading sessions December corn closed between $4.70 and $5.00. One positive, corn did not make a new low for the calendar year.

Beans, however, had a great finish to the week by breaking out to the high side to levels not traded since mid-September. This might be attributed to the weather conditions in Brazil causing some traders concern.

The Mato Grasso region in the north, where nearly 25% of Brazil’s beans are raised, has been hot and dry. Plus, in the south, where another 25% of Brazil’s beans are grown, it has been very wet and delayed planting. However, favorable weather is forecasted next week that could allow for some planting advancement. Regardless, the southern areas still have until late November before delays would cause yields to be compromised and the north is still early in the growing cycle.

Market Action – Results for Buying Puts for Price Protection

I previously wrote that in late December of 2022 I sold 25% of my expected 2023 bean production at $14.04 with a November 2023 futures contract sale.

At the same time, I also bought $13.80 November puts, which is the right to sell beans for a specific value at a later date, for 78 cents on my remaining 75% of production. To get the true hedge value protection of the trade, the 78-cent put cost must be subtracted from the $13.80 strike price to get the actual $13.02 floor protection value.

Combined, these trades provided a guaranteed $13.25 futures price floor on my 2023 beans if there was a major market downturn. They also gave me unlimited upside potential, minus the cost of the puts, if the market rallied. When beans were trading down to $11.30 in late May, I was glad I had downside protection. However, two months later when beans were trading $14, I thought the cost of the puts may have been a waste. Regardless, having upside potential was always the goal for buying the puts instead of outright selling because no weather is unpredictable.

What I Did Next – Rolled My Put Price Down

On Sept. 28, when November beans were trading at $13, I sold my $13.80 puts for 90 cents. I then bought November $12.80 puts for 20 cents to keep catastrophic downside protection in place for another month.

What Does This Mean?

My net cost to own floor protection was reduced from 78 cents to 8 cents. My floor protection was reduced from $13.02 to $12.72. Following are the calculations:

Bought $13.80 put: paid 78 cents

Sold $13.80 put: collected 90 cents

Net Profit: 12 cents

Bought $12.80 put: paid 20 cents

Less 12 cent profit from trade above

Net Cost: 8 cents

Why Did You Do This?

Historically beans tend to rally from early October to late October. So, I basically reduced my floor cost, betting on another seasonal rally. While the seasonals suggested upside potential I feared that yields could be better than expected and it could drive the price of beans much lower during harvest.

What Happened?

The market stayed range bound and finish at $12.97 when the options expired on Oct. 27. Those $12.80 puts I owned for 8 cents expired worthless and my floor protection was gone.

What If You Had Kept The $13.80 Puts?

They would have been worth 83 cents at expiration, and I would have made a 5-cent profit. I paid 78 cents to buy them, and I could have sold them for 83 cents. Instead, I bet on a seasonal trade that did not happen and had a small 8-cent lost.

Why Didn’t You Roll Down the Puts in May When Prices Hit $11.30?

I could have rolled the $13.80 puts down to $12.80 puts, collected a net 10 cents on the trade, AND kept a floor price. This would have meant 75% of my beans were protected at $12.90 instead of $13.02.

I didn’t do this, because at the time bean prices were $2 per bushel below my floor protection price, old crop corn prices had just dropped from $6.50 to $5.50, and I didn’t have any of my 2022 corn sold. Because I was not confident bean prices would rally back $2 per bushel, I couldn’t justify rolling my put floor position lower and potentially taking 12 cents per bushel less for my soybeans betting on a late summer rally.

Fortunately, beans AND corn rallied in June, and I sold the rest of my old crop corn for 70 cents higher than late May prices. This meant my new crop beans missed out a little, but since I, like most farmers, grow substantially more corn bushels than beans, it still feels like a win.

Looking Forward

With no more options in place, I now have only 25% of my beans sold at the equivalent of $13.80 against the November ($14.04 sale price minus the 8-cent put loss).

I am now looking for an opportunity to sell my remaining 75% of 2023 beans.

Next week I will discuss what I did with the sales against the November futures contract.

If you would like to know more about this type of information or your local markets for corn and soybeans, reach out to me at jon@superiorfeed.com .

Want to read more by Jon Scheve? Check out recent articles:

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Could Soybeans Rally While Corn Slides At the Same Time?

Mon, 30 Oct 2023 21:29:05 GMT

Corn finished last week down 15 cents and was nearly 30 cents off the highs from the previous week. Harvest pressure might finally be hitting the corn market. The commercial short positions in the market, which the trade usually views as farmer sales, are at the lower end of the range of the past 10 years. This should be concerning to unsold producers because it means farmers are way behind on sales and any futures rally might be met with increased sales pressure. It could also mean the low for the marketing year is not in yet.

A Historical Look at December Corn Lows

In eight out of the past 16 years, December corn has hit a low for the calendar year after Sept. 1. Half of those lows occurred in September and the other half came in November as seen in this chart:

So far, the low for the year was on Sept. 19 at nearly $4.68. The concern moving forward is that December corn could still find the low for the year in the month of November. Even if it does not find a low in November, history shows in two of the years when the September low held for the year, corn’s value by late November was within 20 cents of that low. The other two years had good rallies, but the lows in those years were in the lower $3 range before the rallies began.

In the past 33 years, corn’s low for the year happened the most in November at 33% of the time.

Soybean Price Potential

Soybeans remained range-bound this week, closing only 5 cents lower than the previous week but up 10 cents from two weeks ago. With harvest nearly complete and soybeans stored away, it could be a while until farmers are willing to sell.

Reasons to be bullish beans:

U.S. export estimates are forecasted to be near trade war levels.
Current carryout projections are the tightest in seven years.
Soybean meal rallied almost 20% in the past month because Argentina is expected to have low supply until March.
U.S. processors will likely be running at full capacity and need a lot of soybeans to make up for Argentina’s short falls.
China might also need to buy additional beans to crush to make up for Argentina’s lack of meal production as well.
Recent rains have caused the Mississippi river to rise slightly, which should help lower freight costs and make the U.S. more competitive globally.

The main reason to be bearish soybeans, is that world stocks are ample. Brazil had a monster-sized crop, and this might lead to less of a need for U.S. exports longer term.

Analyzing the Soybean-Corn Ratio

The corn and soybean markets might take different paths after harvest. Corn’s carryout looks burdensome, and farmers are extremely under-sold compared with other marketing years. It seems farmers have sold nearly an average amount of soybeans for this time of year, despite their carryout being much tighter. This could cause the soybean-to-corn price ratio to trade at unusual levels.

The soybean-to-corn price ratio is factored by dividing soybean’s futures value by corn’s futures value. In the last 20 years, there were only four marketing years when the price of beans was 3.2 times the value of corn or more. See the chart below:

The years that saw a ratio above 3.2 were years that had tight soybean supply or extremely burdensome corn reserves. The current carryout estimates point to the possibility of both burdensome corn stocks and potentially tight bean carryout in the U.S.

If the 3.2 ratio happens again, corn could stay at $4.80 while soybeans trade above $15. Even if corn fell to $4.40 next month, at a 3.2 ratio $14 soybeans is still possible. If the ratio expanded to 3.4, as has happened in other years, $15 is still theoretically possible if corn would continue to trade lower.

If you would like to know more about this type of information or your local markets for corn and soybeans, reach out to me at jon@superiorfeed.com .

Want to read more by Jon Scheve? Check out recent articles:

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Mon, 16 Oct 2023 14:43:42 GMT

Market Commentary for 10/13/23

I had been saying the USDA feed number was off all year. They finally changed it to be more in line with the total animals on feed estimate the USDA has been using throughout 2023.

Harvested acres were not reduced in the October report, but yield was slightly lowered. It seems ear counts were high, but corn test weight was low.

With the yield reduction and increased feed usage, potential carryout next summer decreased 5%. Unfortunately, carryout is still estimated to be above two billion bushels, which leaves the stocks to use ratio very burdensome.

The USDA’s corn export estimate is still very aggressive, and with what we know today, that might be unattainable. US corn delivered to Asia is priced 30 cents higher than Brazil’s corn. That means a corn rally will be difficult until the price differential comes more in line.

Most commercial facilities and end users emptied their bins during the inverse market this summer to increase profitability. Now the market is transitioning back to a carry market, where near term futures contracts are lower than contracts that follow. That means many end users are trying to fill up their “pipeline” with grain early during harvest. They are paying higher than usual basis values for harvest delivery, to take advantage of carry premium available in the market down the road.

Many farmers have not sold much, if any, of their new crop corn yet. That means there could be increased pressure at the end of harvest when farmers run out of on-farm storage. These farmers may end up selling their excess grain to commercial storage facilities or end users instead of paying high dump fees or storage rates.

Beans, on the other hand, have more opportunity moving forward. The USDA lowered yields again, and if ending stocks are realized, it would be the tightest carryout since summer 2016. Plus, the USDA also lowered next year’s export pace estimate, which if realized, would be just 5% higher than the lowest export pace the US had during the trade war years.

This export pace may seem like an attainable number; however, the global supply is not tight. There are plenty of beans in South America. Therefore, it may take a weather issue in South America in December or January for a big price rally.

Want to read more by Jon Scheve? Check out recent articles:

Are The Lows In For Corn? Maybe Not Yet

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Jon Scheve / Superior Feed Ingredients, LLC / jon@superiorfeed.com

Are The Lows In For Corn? Maybe Not Yet

Mon, 09 Oct 2023 21:38:18 GMT

Corn had been trading sideways between $4.77 and $4.89 since Aug. 11 until Friday when it never dropped below $4.92.

Technical traders have suggested the seasonal lows are already in for fall. They say Thursday’s breakout and corn struggling to trade below $4.75 are reasons why higher values should be coming soon.

Seasonal traders say corn traded higher in the second and third weeks of October in 12 of the last 15 years. However, three of those up years only rallied a few cents. There were seven years where corn drifted lower by the end of November. Except for 2011 and 2010, no other rally gained more than 25 cents over the two-week period, and the average gain from the seasonal trade was only about 13 cents.

Fundamentally, the corn market could struggle trading higher moving forward. The main reason is the stocks to use ratio as seen in the chart below:

Over the last 30 years, the stocks-to-use ratio has gone from tight (below the red line) to abundant (above the green line) 4 times.

Every time the stocks-to-use ratio increased from tight to abundant (the orange lines) throughout the year, such as 2023, corn prices dropped at least 30% and up to 42% from the year’s high to the fall low. The only exception was 1997, when it only dropped 15%. However, 1997 might not be a good comparison year because:

Prices in 1997 never rebounded to price levels seen in 1996.
It was right after the 1996 HTA debacle.
It was well before the ethanol mandate.
South America had not yet become the global export powerhouse they are today.

2022 was also an unusual year because the stocks-to-use ratio was expected to be tighter than where it finished because the U.S. export pace never hit early estimates due to the large Brazilian crop that was harvested in May.

So far this year, corn has only dropped 25% from this year’s high. And a decrease in total export demand is not helping, despite Mexico’s buying running 25% ahead of normal for this time of year.

Source: USDA/FAS/Export Sales Reporting

That increased pace might just be grain buyers in Mexico trying to source grain before the GMO versus non-GMO trade issue that will come into play in early 2024. Regardless of the outcome of that trade dispute, it seems likely Mexico’s corn demand could decrease after the new year. This could lead to corn values testing the bottom side of the market again.

Are Yields Improving?

More and more farmers across the U.S. are telling me yields are better than they expected one to two months ago. Plus, computer models are still indicating the national corn yield will be better than current USDA estimates.

Now that the government will stay open another month, the Oct. 12 USDA WASDE report will be released. If yields are raised in that report, the market’s price direction will probably change very quickly.

Want to read more by Jon Scheve? Check out recent articles:

Which Crop Should You Store If You Don’t Have Enough Storage?

Why You Should Never Sell Cash Corn

Do the “Quick Ship” High Basis Values Indicate the US Is Out of Corn?

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Even A Decrease In Corn Yield Does Not Mean Prices Will Rally

Jon Scheve / Superior Feed Ingredients, LLC / jon@superiorfeed.com

Do the "Quick Ship" High Basis Values Indicate the US Is Out of Corn?

Tue, 19 Sep 2023 03:01:07 GMT

Market Commentary for 9/15/23

Some in the trade are questioning the national corn yield after USDA lowered it this week. Early field reports I see across the U.S. suggest yields are better than some are expecting. In eight of the last 22 years, the national yield average went up from the September report to the January report, so there is a chance the national yield can still increase.

Corn export demand, on the other hand, is lousy. USDA has estimated it should be running more than 20% higher at this point in the marketing year verses last season, but it is currently running nearly 10% behind last year’s pace. This makes a sustained corn rally difficult even if the yield does decrease in future reports.

Is the U.S. Out of Corn?
Recently some farmers on social media have suggested the U.S. might be out of corn because of the high basis bid values at various locations in the Corn Belt. I don’t think this is likely the reason for high basis bids. Instead, I believe the inverses in futures and the basis market throughout the summer are the reason for the quick ship bids.

An inverse market is when nearby values are higher than prices further out in time. It incentivizes farmers and commercial facilities to move grain and not store it because it is worth more now versus later. It also incentivizes grain buyers to limit their purchases because grain will likely be cheaper later in time, especially as the new crop harvest approaches.

Therefore, it seems likely that end users have been purchasing grain as they need it to try to keep costs down. In June, when the inverse between old crop and new crop futures widened due to dry weather, many end users began planning for the new crop grain to be available in early September. This meant they likely tried purchasing less of the expensive grain midsummer, while waiting for lower basis values as harvest approached.

In July and early August, basis values in the western Corn Belt were at or above +100, but those bids are now between +20 and -20. That is a price drop of 80 cents to 120 cents. End users probably waited until the last minute to buy their late August and September usage because it seemed likely that it would be more profitable for them to scramble and pay for a few loads at higher values before new crop becomes available versus pay the guaranteed higher prices earlier in the summer.

In other words, end users with “quick ship” higher basis bids probably planned to be out of corn as close to the start of harvest as possible. They were likely willing to pay +20, when other end users in the market were paying -20, to avoid paying +100 in early August for their September needs.

I would argue the current higher basis bids throughout the U.S. are not an indication of low supply. Instead, I think most end users understand how an inverse market impacts grain prices and adjusted their plans accordingly to maximize profitability.

Farmers Should Have Set Basis Before July 1.

Farmers who did not set their basis values before July 1 learned a painful lesson about basis inverses. Yes, the dry weather could have caused a futures rally. However, new crop will always significantly push basis values down from July until late September, especially when futures are inverted.

Farmers who held cash grain until now are looking at a $1/bushel basis value drop, which does not include what they missed in futures value during the same time frame. Grain marketing is complex, and it pays to have someone help you understand the dynamics of all the moving parts.

I helped many farmers throughout the U.S. get some of the highest basis values of the year before the steep basis decline in July. If you would like a private grain merchandiser to help you maximize your local basis values profits, like the end users do above, or if you just want more information on how the basis market works in your location reach out to me.

Want to read more by Jon Scheve? Check out recent articles:

Why You Should Never Sell Cash Corn

Yield Uncertainly Continues For Corn And Beans

Even A Decrease In Corn Yield Does Not Mean Prices Will Rally

Does The World Have Too Much Corn? Plus How To Be More Profitable Understanding Spreads.

The War Is Impacting The Corn Market More Than Weather Right Now

Jon Scheve

Superior Feed Ingredients, LLC

jon@superiorfeed.com

Yield Uncertainly Continues For Corn And Beans

Mon, 04 Sep 2023 01:08:16 GMT

Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com

Market Commentary for 9/2/23

Usually by this time of year there is more clarity around yield potential, but the extent of possible late season heat damage is creating some uncertainty in the market. Right now, the bean market likely has more upside potential than corn, because August weather is more critical for bean development.

Final Thoughts on the 2022 Marketing Year

Corn

Over the last few weeks, I have been reviewing my 2022 crop sales to evaluate performance and see how I can improve my grain marketing strategies going forward.

At first, I was a little disappointed with the average sales of $6.42 corn futures for 2022. However, it is easy to forget that waiting until spring the previous two years had led to values between $7.50 to $8.00, and market conditions this year suggested it could happen again. The following chart shows the spot futures market the previous two years.

In early February I reviewed the post-harvest corn futures to determine my downside risk, and as one can see below, it had mostly been ranging between $6.50 and $6.85.

Then in late February as Brazil’s second corn crop was being planted, it was clear Argentina was experiencing a bad drought. Therefore, it seemed likely dry conditions would spread to Brazil too, which could have pushed a corn rally to $8. In the end though, Brazil received timely rains through the growing cycle, and the market pulled back.

I Should Have Just Sold Everything at Harvest

I heard this statement a lot this year, and for this year it would have been the right decision. However, historically selling for cash at harvest is almost never the most profitable strategy. This chart shows the cash value for corn picked up on my farm since harvest.

The highest possible cash price for the year, picked up on my farm, was $7.28. After accounting for spreads, basis, and options premiums, my final cash price was $7.04 picked up on the farm. This means I only missed the best possible cash price by 24 cents, if I was even lucky enough to sell everything on that day, which would have been hard to guess.

Corn Final Thoughts

Due to the war, very dry weather in my area, and the market being in an uncommon inverse, I did not sell any futures positions until after harvest. Since I waited, my futures sales ended up in the middle of the range for the year.

However, my grain marketing strategy optimized futures, spreads, options, and basis trades independently. This allowed me to improve my overall price significantly, and I only missed the highest possible cash price by 24 cents. Plus, it also gave me the flexibility to wait an additional eight months to see if the market would repeat the previous two years and rally to $7.50 or even $8.00. Knowing all the uncertainty and risk that I faced in 2022, I was happy with this corn outcome.

Beans

While my corn trades included four different aspects of trading, my beans only included futures and basis. I sold 75% of my beans at $15.06 on futures. The highest price between harvest and July 4^th this summer was $15.55, so I was pleased with that price level. I sold the original 25% for $12.20 a year earlier, which stings a bit. However, that early sale was a risk management decision, so I can’t be too disappointed in it.

I am most happy that I was able to set my basis at +50, picked up on the farm, which was the best possible basis value for the year.

The following chart shows the cash value for beans picked up on my farm since harvest and compares the best possible price to my total average.

The 25% futures sale I made nearly a year earlier was the only reason my average cash value was not at the high of the year and ended up slightly below $15.

Beans Final Thoughts

I was surprised bean futures remained so strong through spring. Despite Argentina’s drought, Brazil raised a huge crop this year, and the market never seemed concerned about it.

The strength of the bean market long term gives me hope that opportunities will remain going forward. And while corn prices may be concerning in this upcoming marketing year, beans may pull prices higher in 2024.

Bottomline

I sold my corn for above $7 and nearly got $15 for my beans. That feels like a successful year.

Want to read more by Jon Scheve? Check out recent articles:

Even A Decrease In Corn Yield Does Not Mean Prices Will Rally

Does The World Have Too Much Corn? Plus How To Be More Profitable Understanding Spreads.

The War Is Impacting The Corn Market More Than Weather Right Now

Demand May Be a Bigger Factor Than Yields Moving Forward for Both Corn and Beans

Which Way Will Bean Prices Go?

Jon Scheve

Superior Feed Ingredients, LLC

jon@superiorfeed.com

Opportunities To Make Money in Sideways Markets

Mon, 26 Dec 2022 15:19:28 GMT

Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com

Market Commentary for 12/23/22

The market is in “holiday mode” with light trading, while the weather in Brazil and Argentina is being monitored closely. Any dry conditions could further reduce corn and bean yields over the next few weeks.

Market Action

On October 3^rd when corn was trading at $6.85, I suspected corn prices would likely be range bound or slightly higher after harvest was finished. Therefore, I placed a trade to maximize some profit potential if that happened. On 10% of my 2022 production, I sold a $6.85 January straddle (i.e., sold both the $6.85 January put and the $6.85 January call which are based upon March futures). This allowed me to collect a net positive value of 68 cents.

What Does This Mean?

If the value of March corn on December 23^rd is:

Above $7.53 – I must sell futures at $6.85 but keep all the 68 cents collected on the trade, so it would be like selling $7.53 futures.
Below $6.17 – I give back all of the 68 cents initially collected from the trade and I start to lose on this trade penny for penny below this value.
Between $6.17 and $7.53 – I keep some of the 68-cent profit I collected to place the trade. The closer the price is to $6.85, the more I keep.

Why Did You Make This Trade?

I was comfortable with all potential outcomes.

Prices go up - I would have been happy selling 10% of my crop above $7.50.
Prices go down - Based on early yield reports, it seemed unlikely corn would trade to the lower end of the range, and because it was only on 10% of production downside risk seemed limited.
Prices stay sideways - I would collect additional profits, which historically seemed the most likely scenario.

What Happened?

On December 23^rd, when corn was $6.67 and the options were about to expire, I bought back the $6.85 put for just under 20 cents because I did not want it to execute and give me a long position in my hedge account. I did not buy the call back because it was very likely that it would expire worthless at the end of the day because the market was well under the $6.85 strike price as well as saving me commission on that portion of the trade. After all commissions, I made about a 48-cent profit on the trade (i.e., the 68 cents originally collected less the 20-cent cost to buy back the put), which I can apply to my final prices.

Bottomline:

This is the second straddle I collected over a 45-cent profit on in the last month on 10% of my production. While these examples illustrate how selling straddles in sideways markets can be a great way to increase profits, they need to be done carefully. Farmers need to fully understand and be willing to accept all potential final outcomes if prices go up, down or sideways before placing these type of trades.

Want to read more by Jon Scheve? Check out recent articles:

O nly YOU Can Prevent The Spread Of “Free” Storage

Selling Options In A Sideways Market Can Add Profits To The Bottom Line

How to Keep the Upside Price Potential Open With A Profitable Floor Price

Can Corn Still Find Its Way To $7.50?

Can Soybeans Continue To March Higher?

Jon Scheve

Superior Feed Ingredients, LLC

jon@superiorfeed.com

Only YOU Can Prevent The Spread Of “Free” Storage

Mon, 19 Dec 2022 21:08:51 GMT

Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com

Market Commentary for 12/16/22

Over the last two years La Nina decimated parts of South America’s corn and bean production. This led to beans rallying $1 per bushel and corn rallying 50 cents each year at the end of December and into January. That is why the market is closely watching weather forecasts, because La Nina is still present and could impact their growing season.

Preventing The Use Of “FREE” Storage

Once again “free” storage is being advertised throughout the corn belt. While some also call it “price later opportunities,” “delayed pricing” or “DP” it refers to when farmers sign over their grain to an end user, and then wait to price the grain later, hopefully at higher values.

On the surface, “free” storage seems like a win-win for farmers and end users. These “free” storage programs are a great way for end users to procure grain supply during the winter. And farmers can move their grain now when they are not busy, and price later during a potential rally. Unfortunately, “free” storage ends up costing ALL farmers, those using it and those that do not.

Why Does “Free” Storage Hurt All Farmers?

When end users offer this program, it is usually because they are having difficulty procuring enough grain to meet their immediate needs. Typically, “free” storage offerings spur a rush of quick ship grain and helps end users get through a month or two of difficult origination. However, this ultimately keeps basis prices artificially lower than the bids end users should be willing to pay for grain right now. In other words, why would end users push their basis bids up when they are getting plenty of grain delivered?

How Much Are Prices Impacted?

Basis level suppression from “free” storage could be 10-20 cents in an average year, but it might run higher depending on local conditions. For example, last year there were production issues in central Missouri and North Dakota, and basis values after harvest in those areas were 50 cents higher than normal. Similarly, this year the southwestern part of the corn belt experienced a lot of dry weather, and basis values there were $1 per bushel higher than normal.

Why Do Basis Levels Fluctuate So Much?

Basis usually goes up when farmers quit selling because they either run out of grain to sell or they think prices will go higher and hold their grain. Therefore, end users need to incentivize grain movement and sales to their facility by increasing basis. Conversely, end users will then decrease basis bids when there is plenty of supply available.

This means when farmers are not using “free” storage programs, end users need to increase basis values to entice farmers or commercial facilities to move grain. Those higher bids mean increased prices for ALL farmers in that area and potentially the surrounding areas.

But “Free” Storage Offers Several Conveniences to Farmers

True, some farmers argue that with “free” storage they do not have to worry about their grain’s condition in the bin or when to move it. Plus, they get the flexibility of being able to sell at potentially higher prices down the road.

Again, these conveniences seem good on the surface, but the farmer has actually limited their pricing opportunities. These farmers are now committed to the prices the end user is offering, and that usually means current month basis bids that run at lower values than forward bids. This “forced” discounted price is part of the cost for the “free” storage.

Another problem with “free” storage is that when farmers place a sell order on their “free” stored grain, it is usually for a cash price sale. This allows end users to know the price many farmers are willing to sell at, because they can see all the pricing orders that are placed. If many farmers pick the same general price point to sell, end users can fade their basis bids back as that cash price point approaches. This basis fade may only be 2-5 cents, but the “free” storage program just cost farmers in that area a little more money.

Just A Few Farmers Using “Free” Storage Hurts All Farmers

It only takes about 20% of farmers in an area to commit 50% of their production to “free” storage for end users to procure about a month’s worth of needed production. This can bridge end users until the next round of farmer selling, often right before planting season, and suppress prices for all farmers locally. Plus, these lower basis values can trickle beyond the surrounding area and impact farmers in markets further away.

Nothing Is Ever “Free”

In grain marketing there are always hidden costs. And, for “free” storage programs the hidden costs hurt ALL farmers not just the ones that participate.

So, encourage your neighbors to not use “free” storage. Following is a list of what to mention:

End users offer it because it is beneficial to them, not the farmer
No end user would offer something for free if it did not profit them in some way
“Free” storage users contribute not only to price suppression for themselves, but all farmers in the area
Using “free” storage means they will be locked into using an end user who knows what price farmers are willing to sell their grain, and could artificially lower prices
The minor conveniences they are getting come at a huge cost to both them and YOU

Remember only YOU can prevent the spread of “free” storage.

Want to read more by Jon Scheve? Check out recent articles:

Selling Options In A Sideways Market Can Add Profits To The Bottom Line

How to Keep the Upside Price Potential Open With A Profitable Floor Price

Can Corn Still Find Its Way To $7.50?

Can Soybeans Continue To March Higher?

Does Corn Need To Trade Back To $6.50 Or Move Up To $7.50?

What Is In Your Marketing Toolbox

Jon Scheve

Superior Feed Ingredients, LLC

jon@superiorfeed.com

Should I Be Storing Beans or Corn This Year

Mon, 26 Sep 2022 06:07:10 GMT

Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com

Market Commentary for 9/23/22

Currently the corn harvest is about 10% complete nationally. As the new crop crosses the scale, the futures market likely adjusts based on how many farmers are selling. Early indications suggest landowners on share crop and farmers with limited storage capacity could be satisfied with prices around $7 and will likely move forward with spot sales. As harvest continues this trend could intensify and push prices lower.

Also, as harvest continues throughout the Midwest, basis values are coming under pressure. There may still be some short-term opportunities where harvest is not as far along yet, but those basis bids will fade fast over the next 10 days.

What To Store, Corn or Beans?

Every year as harvest starts farmers ask me which crop should be stored if they do not have 100% on farm storage.

Analyze Interest Cost by Crop

The first step to maximize profitability is to analyze the cost per bushel per month to store each crop. To do that, I take todays cash value of each crop, multiply it by my operating note interest rate, and then divide by 12 months.

- Corn

Cash value assumed: $6.75
Multiply 6% Interest rate
Divide by 12 months
3.3 cents cost per month to store

- Beans

Cash value assumed: $14.25
Multiply 6% Interest rate
Divide by 12 months
7.1 cents cost per month to store

This shows the interest cost alone to store corn is about 4 cents less per month compared to beans.

Note: if I was in this situation, I would not necessarily just sell my crop outright. However, I would want to avoid paying commercial storage and minimize my interest payments as soon as possible. Therefore, I would sell the physical grain and use some type of re-ownership program through futures or options.

Storage Costs

If we assume a 0.5% shrink for both crops in storage, corn will have another 4-cent advantage over beans mostly due to the price difference between the crops. Also, the same sized bin on the farm can hold 10% more corn bushels than beans, due to the weight difference between the crops.

Analyzing Basis Upside Potential

Looking forward after harvest, upside potential for basis should also be considered and will vary throughout the country based on location, timing, and the type of grain buyers available in the area.

Futures Is Not a Consideration

The upside, or even downside, potential for futures is NOT a consideration when determining which crop to store because either grain can be re-owned with futures or options.

Bottomline

After working with many farmer clients one on one throughout the US, and assessing their specific needs, I find that most times it is more beneficial for farmers without 100% on-farm storage to move their beans at harvest and store their corn.

Want to read more by Jon Scheve? Check out recent articles:

The September USDA Report Indicates Upside Price Potential Moving Forward

Avoid Catching “Backyard-itis”

If Yields Are As Low As The Pro Farmer Tour Indicates Then $9 Corn Is A Possibility

Corn Basis Is Imploding Around The Country

The Corn Market Has Upside Potential And Depending On Weather Beans Could Still Be Explosive

Having A Risk Management Strategy Makes Big Market Drops Easier To Handle

Jon Scheve

Superior Feed Ingredients, LLC

jon@superiorfeed.com

The Corn Market Has Upside Potential And Depending On Weather Beans Could Still Be Explosive

Mon, 15 Aug 2022 14:44:32 GMT

Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com

Market Commentary for 8/13/22

USDA Report Highlights

Corn

The latest USDA report decreased the average national yield from 177 to 175.4, slightly below the average analysts’ expectations of 176. To offset the supply drop, the USDA also lowered corn demand in every category between both marketing years. While these numbers seem bullish long term, precipitation over the next week throughout the corn belt, as kernel fill finishes, will be a big factor. With what we know today, average yield potential is likely limited to a 174 to 176 range.

The follow chart analyzes potential carryout scenarios based on yield variances. This illustrates carryout may be tighter than last year.

The supply estimates should keep a floor value under corn futures moving forward, while demand will likely contribute to price potential the rest of the year.

Europe continues to have one of the worst droughts in history. Corn yields are currently down 10%, with estimates it could fall another 10% over the next 2 months. This could mean 500 million fewer corn bushels globally than was expected just 6 weeks ago.

Due to better-than-expected weather the last 2 months, the USDA increased Ukrainian production slightly. However, it is uncertain if the grain can be moved after harvest. Despite the new vessel export agreement, movement remains extremely slow, and the logistics to sustain export capacity from the ports is still unclear.

World corn carryout is estimated to be lower next year, which could suggest higher prices moving forward.

Beans

There were two surprises in the USDA report for beans. First, it lowered planted acres due to the resurvey in the Dakotas. These lost acres were on fields that usually produce significantly lower than the national yield average. This probably explains, at least in part, the second surprise of the USDA increasing the national yield average by ½ bushel per acre.

Overall, the USDA only changed total production by 26 million bushels. To offset the small gain, export potential was increased by nearly the same amount for the coming year.

The market will now focus entirely on weather for the next 2 weeks. Then the September USDA report’s yield estimate will be the main driver for bean price direction. As the chart below shows, any production problem will mean extremely tight carryout and potential price rationing.

Looking into early next year, Brazil is expected to produce a massive soybean crop, which could increase world bean carryout. Early estimates indicate it will be 20% larger than what Brazil produced the last two years and 30% bigger than what the US normally produces assuming they receive normal weather in the growing season.

South America still has a 60% chance of a 3^rd year La Nina this winter, which is down from 85% earlier this summer. If Brazil’s production is affected by dry weather as it was this past year, world stocks will be lower than current levels.

Bottomline

The corn market looks stronger now than before the report. The bean market still has a lot of questions, with US weather being a major factor over the next two weeks.

Want to read more by Jon Scheve? Check out recent articles:

Having A Risk Management Strategy Makes Big Market Drops Easier To Handle

Sales At Lower Values Can Pull Averages Down Quickly

Shifting Sales Between Crop Years Nets A 90 Cent Profit

How I Managed Spreads And Basis To Add 48 Cents Profit To My Final Corn Price

Understanding How To Trade An Inverse Market Can Add Profits To A Farm Operation

It Was A Disappointing Week, A Lot Of Market Questions Remain

Jon Scheve

Superior Feed Ingredients, LLC

jon@superiorfeed.com

Take Our Poll: What Is the Highest Price You Have Ever Sold Corn?

Thu, 03 Mar 2022 20:43:53 GMT

Grain prices have been surging recently, including cash bids of over $7 for corn at many elevators. What’s the highest per-bushel price you’ve ever sold corn? Take our poll below!

Quiz Maker

Chip Flory: Your Guide to Goal-Based Marketing

Tue, 26 Oct 2021 18:00:00 GMT

I talk with Greg Peterson each Monday morning on “AgriTalk.“ Greg’s insights and data into what’s happening in the used machinery market are important when making big-dollar purchasing decisions.

For many crop and livestock producers, equipment upgrades take planning and mean taking on debt. It’s the kind of purchase worthy of strategy.

LINK SALES TO STRATEGIES

The concept of “goal-based marketing” is easy to understand. The strategy links the sale of crops or livestock to a goal for your business. It could be buying equipment, paying off debt, herd expansion, — even retirement. It’s a strategy to employ at a time when markets are offering opportunities to book profits. (In break-even years, avoiding a loss might be all the goal you need.)

It’s the lack of execution that can turn a goal-based marketing strategy into another delayed equipment upgrade. Most often, the error is made early in the process rather than when it’s time to make sales.

IDENTIFY PROFIT OPPORTUNITIES

Check the longer-term market outlook. Market outlook comes first, and price outlook comes second.

This means evaluating how quickly changing market fundamentals and long-term, slow-to-develop trends might influence prices between now and five years out.

The Renewable Fuels Standard was a change in market fundamentals. It attracted investment to an industry that eventually added 5 billion bushels to domestic corn demand. That was a major change that generated multiple years of profit opportunity. Think about renewable diesel, sustainable aviation fuel and the investment being made in the U.S. oilseed crushing industry.
In each of the four years leading up to the 2021/22 marketing year, there was more corn consumed around the world than was produced. In 2021/22, 99% of corn production is expected to be used. That’s a trend that demands more corn acres — and it’s a long-term, slow-to-develop trend that acts like a rising tide under profit potential.

Admittedly, it takes imagination to evaluate how something happening today will influence profitability over the next five years, but missing those market signals means missing the opportunity to use a goal-based marketing strategy.

Only you can identify efforts worthy of goal-based marketing, but goal-based marketing can be a multiyear effort.

DO THE MATH

Think through:

What’s the dollar amount needed?
Dollars needed divided by acres committed (it doesn’t have to be all your acres).
When the combination of yield and cash price hits targeted profits, make the sale.

I am not saying making a profit is as simple as planning for a profit – that’s not how commodity markets work. I am saying making a plan for profits brings discipline.

Too many times, growers view a cash sale as a “give up.” (“Prices are done going up — I guess I better sell.”) If profits are already designated for growth, making a sale is done with purpose – it’s executing a strategy.

Check the latest market prices in AgWeb’s Commodity Markets Center .

Farmer's Share of Food Dollar Shrinks...Again

Sun, 15 Nov 2020 18:28:29 GMT

“We are in the midst of an agricultural financial crisis,” says National Farmers Union President Roger Johnson.

He said that after looking at a new USDA Economic Research Service release. It says for each dollar spent by American buyers on food farmers and ranchers get 14.6 cents of that.

It represents a 17 percent decline since 2011 and the lowest number since USDA began keeping track in 1993.

Johnson says the rest of the dollar, 85.4 cents covers off-farm costs like processing, wholesaling, distribution, marketing, and retailing.

“We’ve got net farm income roughly half of what it was five years ago,” says Johnson. “Projections for the next 10 years are not much better and that creates [a difficult] environment, not just on farmers and ranchers but in particular on folks who just got in the business.”

He believes anyone who just started farming in the last ten years is in a lot of trouble.

Johnson says his delegation thinks agriculture should go back to the old supply control mechanisms built around voluntary incentives that encourage less production as prices fall.

Why “Free” DP Hurts Grain Prices For All Farmers

Wed, 13 Jan 2021 23:06:07 GMT

Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com

Market Commentary for 2/14/20

Not much is exciting the markets right now beyond the coronavirus, and until more is known about its effects and how it spreads, the market will likely remain under pressure.

Preventing the Spread of “FREE” DP

February is when free storage from “free” DP (deferred pricing) starts being advertised throughout most of the corn belt. While some also call it “price later opportunities,” or “delayed pricing” it refers to when farmers sign over their grain to an end user, and then wait to price the grain at a later date hopefully at higher values.

On the surface, DP seems like a win-win for farmers and end users. DP is a great way for end users to get a supply of grain during the winter. And, farmers can move their grain now when they aren’t busy, and price later during a potential rally. However, DP actually ends up hurting ALL farmers, those using it and those that do not.

Why Does It Hurt All Farmers?

When end users extend this program, it’s usually because they are having difficulty procuring enough grain to meet their needs. Typically, free DP offerings spur a rush of quick ship grain and helps end users get through a month or two of difficult origination. However, this ultimately keeps prices artificially lower than the bids end users should be willing to pay for grain right now. In other words, why would end users push their market bids up when they are getting plenty of grain delivered?

How Much Are Prices Impacted?

The basis level suppression could be 10 cents or more. Last year provided a good example of what happens when end users have problem procuring grain. After severe planting delays last June, the entire country feared many farmers wouldn’t be able to plant their corn. Consequently, farmers quit selling because they didn’t know where prices could go. With most farmers not selling, corn basis values spiked 30 cents higher nearly everywhere.

If farmers didn’t take advantage of free DP, it could create a similar but smaller version of the basis spike that happened last summer.

But DP Offers Several Conveniences to Farmers

True, some farmers argue that with free DP they don’t have to worry about their grain’s condition in the bin or when to move it. Plus, they get the flexibility of being able to sell at potentially higher prices down the road.

Again, these conveniences seem good on the surface; however, the farmer has limited their pricing opportunities. These farmers are now committed to that end user and their offered prices, and usually that means current month basis bids run at lower values compared to forward bids. This discounted price is part of that cost for the “free” DP.

Another problem with free DP is when farmers place a sale order on their DP grain, it is usually for a cash price sale. This enables end users to know the price that many farmers are willing to sell at, because they can see all of these DP user orders. If many farmers pick the same price point to sell their grain, the end users can then fade their basis bids back as that price approaches. While this basis fade may only be 2-5 cents, that “free” DP just cost the farmers a little bit more money.

Just A Few Farmers Using Free DP Hurts All Farmers

It only takes about 20% of farmers in an area to commit 50% of their production to “free DP” for end users to procure about a month’s worth of needed production. This can bridge end users until the next round of farmer selling right before planting season, and suppress prices for all farmers locally who need higher prices to be profitable.

In Grain Marketing Nothing Is Ever “Free”

There are always hidden costs, and for “free DP” the hidden costs hurt ALL farmers not just the ones that participate.

So, encourage your neighbors to not use free DP. Tell them the common nicknames for farmers using DP....like Delaying Problems or Dumb Producers. Tell them that end users see it as a way to Double Profits. Explain how free DP users help to suppress prices for all farmers. Or tell them how they are now locked into using an end user who knows what many local farmers are willing to sell their grain for, and how that will keep prices artificially lower. Tell them the minor conveniences they are getting come at a huge cost to not only them but YOU too.

Remember only YOU can prevent the spread of free DP.

Want to read more by Jon Scheve? Check out recent articles:

30 Years Of Corn Market Trending Shows Reasons To Stay Positive

The Bean Trade I Didn’t Make

How I Am Capturing Additional Profits In A Sideways

Set Bean Basis At Best Value In 4 Years & Sold Futures Near Year High

USDA Observations And How I Got $4.14 On 10% Of My 2019 Corn Futures

Is 2019 A Good Year To Model A Marketing Plan Around?

Why Are Basis Values So Different By Geographic Area

Will Basis Remain Strong Or Is It Time To Sell

How I Captured Market Carry On My Corn

Sideways Markets Can Still Provide Profit Potential

Is It Possible For Beans To Trade Above $9.50 & Corn To Trade Above $4

Jon Scheve
Superior Feed Ingredients, LLC
jon@superiorfeed.com

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