QUESTION: A farmer asks: I'm a new farmer and I'm looking at preselling some corn I haven't planted yet. Could you tell me what you think a good strategy is to market corn preharvest? What guidelines can you give me to consider?
My plan is based on 150 bushels per acre of guaranteed insurance bushels and my goal is to produce 200 bushels or more per acre. I'm a bit nervous about preselling more corn than I can deliver. What kind of a price goal should I be looking at? Right now the December 2013 corn futures price is around $5.61 and the basis is 42 cents at our local elevator. Should I think about selling something like 500 or 800 bushels each week on a day when the market is up?
The "Farm Management Friday" editor asked Steve Johnson, an Iowa State University Extension farm management specialist, to answer this farmer's question.
ANSWER: Know your cost of production per bushel, and then make incremental forward contract sales above this cost during the spring and summer months. If you elected Revenue Protection, or RP, crop insurance in 2013, you should consider leveraging that price guarantee of the projected price.
Consider dividing your insurance bushels and sell incrementally each week, especially when new crop futures are above the projected prices of $5.65 per bushel for corn and $12.87 per bushel for soybeans. I suggest targeting these sales in the March to June time frame. If you're concerned about weather adversely impacting your farm's 2013 production, stop short of selling all of your insurance bushels.
On the other hand, if you think futures prices will rally into the summer months, then don't sell all of your insurance bushels during the spring months. If you don't want to commit bushels to delivery via a forward contract or Hedge-to-Arrive (HTA) contract, then you might consider buying put options. But I'd be patient for now. By late spring/early summer, hopefully you can choose a higher strike price and a cheaper premium.
Consider selling new crop bushels when new crop futures are above the projected price
My suggestion is to sell some new crop corn bushels when new crop futures are above $5.65 (the projected price) which is your price guarantee which determines your revenue, should there be a shortfall in your production due to adverse weather.
Thus, my recommendation is that you target most of your sales between now and mid-June for corn, and now and early July for soybeans. If new crop futures never exceed the projected price, consider making sales of smaller increments. If you elected the 75% coverage level for crop insurance, your guarantee is a revenue guarantee. It is calculated by multiplying your APH times this level of coverage times the higher of the projected versus the harvest price.
You might try to keep your contracted bushels to 1,000 bushel increments so that a truck/trailer can be used. That means if you're selling 500 bushels one week, you should match it up with another 500 bushels another week for that same delivery period.
If you think that the basis might narrow between now and when you deliver your bushels, you might think about using a HTA contract. You'll still need to set the basis on those HTA bushels, likely in advance of delivery.
Keep in mind that you'll likely have more corn sales than soybean sales as corn yields about three to four times as many bushels as soybeans per acre.
For more information, go to farmprogress.com.
For farm management information and analysis go to ISU's Ag Decision Maker site www.extension.iastate.edu/agdm and ISU Extension farm management specialist Steve Johnson's site www.extension.iastate.edu/polk/farm-management.