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2 important risk management considerations to ponder now

Ag Marketing IQ: Crop insurance and cash needs impact marketing for both new and old crop sales.

Matt Bennett, Commodity analyst

May 5, 2023

5 Min Read
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As May begins, commodity markets are trying to decide which way to go. Given big-time swings lower in the last couple of weeks, profitability and risk-management conversations have changed a great deal. It brings to mind the importance of keeping tabs on a couple of big items as we move into a time that could be, if possible, even more volatile.

Those items:

  • How our crop insurance should affect our marketing for new-crop

  • Our cash needs for harvest when formulating the timing of our sales, either for old or new bushels

Prices slide

First, we should look at what prices have done in a short amount of time. For July corn, we saw a high on April 18, just 12 marketing sessions ago, of $6.47 ½. The low, in this timeframe, was posted on May 3rd at $5.69 ¼. In 11 sessions, we saw a deterioration of close to 80 cents. Dec corn moved from a high of $5.71 to a low of $5.12 ½ in the same timeframe -- not near the same drop but a tough one to stomach nonetheless.

For July beans, we saw a high on that same day of April 18 of $15.01 move to a low of $13.92 ¼ on May 3. Nov beans dropped from $13.25 ½ down to $12.51 ¼ in that same timeframe.

If you have old crop, either corn or beans, basis levels have fluctuated here and there, but the main theme has been one in which basis has remained firm. Stocks of both beans and corn are relatively tight, evidenced by strong inverses as well as the firm basis we just mentioned. While basis hasn’t made up for all of the losses on the board, it’s fair to say price levels for old-crop have stayed strong.

Related:Old crop corn demand weighs on markets

The bigger issue for many is how to handle new crop. While break-even levels for many are in the $5/bushel range (cash), based on the growers I work with, the plunge to (within earshot of) $5 CZ23 has been unsettling. Soybean break-evens are a bit more erratic than corn, but for the most part, we’ve seen those levels average around $11.50 to $12.50 cash.

Crop insurance and cash flow

Let’s look at corn from a crop insurance perspective. With a $5.91 spring price and much lower volatility than a year ago, I’ll assume many growers were aggressive in their plan. At 85%, $5.02ish is where crop insurance would kick in on a revenue plan IF the grower had APH yields.

While I know as producers we want to get stuff sold before we go even lower, I’m not sure I want to press making sales when we are close to having our ‘government subsidized put option’ protecting us.

However, we have to keep in mind what our cash needs are for harvest time. If we don’t have much in the way of old-crop stocks left, most of us are going to need some cash in the fall.

I know everyone has their own unique situation, but IF your position necessitates raising cash for fall needs, keep in mind making decisions on sales during harvest isn’t always a great time to do so. I’d rather have corn or beans sold for fall delivery ahead of time than be forced into making that decision at a time when basis levels are typically the widest we see.

Sales timing

So, when do we look to make sales? Seasonally, we typically see some strength into the first half of June, so the hope is we get some sort of rally action in the next month. It’s been interesting to see the funds building a net short heading into the summer (not typical) but that could propagate quite a rally with any worry over weather issues.

So, if you need to make sales for harvest, look for an opportunity to do so on a seasonal or weather-based rally versus making those sales at harvest time.

I hope your planting season has gone well or goes well for those who aren’t done or started just yet.

Feel free to reach out to me or anyone on the AgMarket team.

Reach Matt Bennett at 815-665-0462 or [email protected].

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About the Author(s)

Matt Bennett

Commodity analyst, AgMarket.Net

Matt is a Windsor, Ill., farmer and former grain elevator owner. He is Channel Seed’s grain marketing consultant and holds a Series 3 brokerage license doing business through AgMarket.Net, Farm Division of JSA. He specializes in formulating risk-management strategies for corn, soybean farmers and livestock producers. A graduate of University of Illinois, Matt and his wife Tiffany live on the family’s centennial farm where they raise their five children.

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