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Corn+Soybean Digest

Farmer-Feeder Covers His Bases

Texan locks in high and low corn prices When Texas Ranger Pudge Rodriguez comes to bat, American League foes know the spray-hitting slugger could send the ball deep and anywhere. Farmer-cattle feeder Steve Mercer takes a similar approach in covering corn prices.

He tries to cover all his bases to protect against price drops for corn he's selling and price increases for corn he's feeding. His marketing lineup usually features futures, options and cash contracts to put a good defense on the field.

His Kearney, NE, family farm and finishing feedyard operation, Double M Farms, Inc., has about 3,000 acres of corn production, and a 3,000-head-capacity feeding program. In normal years, Mercer tries to market half his crop early and store and feed the other half after harvest.

To secure a solid price early in 2000, he went with hedge-to-arrive (HTA) contracts in April and May. They were based on $2.63/bu December 2000 futures. Because there were early predictions of drought, he took steps to cover the upside.

"I put on a bull-call spread," says Mercer. "I bought a $2.60 December 2000 call option and sold a $3.10 call option. The total cost was about 10. If the price had increased, I had an upside window of $2.70-3.10."

With all those trades, he was guaranteed at least a $2.63 futures price with strong upside potential. And with the HTA, he was able to set the basis for his local cash price anytime prior to delivery.

In early July, he cash-contracted additional corn at about $1.80, along with another bull-call spread to take advantage of any price increases. He bought $2.10 December calls and sold $2.50 December calls for a total cost of 6/bu. "That extended my protection against a drop-off in profits (from the cash-contracted corn) to about 30," he says.

With projections for a larger crop after summer rains, he felt the harvesttime price could easily approach $1.50. With the loan rate at about $1.87, that gave him an LDP of about 40.

As for corn that would remain on-farm and at the feedyard, Mercer wanted to make sure that reasonable cattle prices would not be offset by jumps in corn prices. For protection, he used put and call options on about one-third of that corn.

"I bought $2.50 December puts and sold $3.10 December calls to reduce that cost for protection to 6/bu," he says.

With that move, and with harvest prices below $2.50, he collected a premium by exercising the option and still had access to feed at a lower price. If the price had escalated, he could have collected a premium to offset higher feed costs.

For additional corn to be stored and fed, he watched market moves toward year's end.

"At harvest, when yield reports started coming in from the Corn Belt that the crop wasn't as good as originally thought, we covered our feed costs by buying enough July corn futures to cover our needs through the first six months of 2001," Mercer reports.

He notes that with the Freedom to Farm program, more individual grower marketing is needed. He would also like to see growers have more control over the grain market pipeline, but without hefty set-asides.

"Maybe an on-farm, three-year reserve program in which corn would come out at certain price levels," he suggests. "We could see better control over inventory. Right now we're at the mercy of elevators at harvest."

But until prices are more stable and profitable, he constantly keeps his eye on opportunities to lock in a higher price. He's already thinking about next season. "I'm looking for a chance to market 2001 and 2002 corn at $2.75-2.80 when a rally occurs," he says.

And he'll have his bases covered, even if prices take off.

ASA's Conservation Legacy Award Kicks Off A new program to recognize and honor farmers who distinguish themselves for taking care of the environment - and still reap economic returns from their farms - kicks off this month. In fact, if you attend the Commodity Classic in San Antonio on Feb. 25-27, the American Soybean Association (ASA) will officially unveil the Conservation Legacy Award.

"It's designed to promote conservation and good stewardship by recognizing producers who use innovative and effective conservation practices," says Tony Anderson, ASA president and farmer from Mt. Sterling, OH.

Award winners will be selected from nominations/applications received by ASA. Four regional and one national winner will be named by a selection committee including farmers, environmentalists and industry representatives.

Nomination/application forms are available from the ASA Web site ( or by calling 800-688-7692. All soybean farmers are eligible to participate.

"Farmers have been, and remain today, the primary environmental stewards. These awards will recognize those farmers and share their stories with the public," says Anderson.

Program sponsors are ASA, Monsanto and Soybean Digest.

Charcoal Rot Worse Than Soybean Cyst Nematode Charcoal rot has surpassed soybean cyst nematode as the No. 1 disease in a region stretching from southern Illinois to Delaware to Texas, reports John Russin, Southern Illinois University plant pathologist.

The charcoal rot fungus survives drought, winter weather and crop rotation, and attacks more than 500 plant species, including soybeans, Russin says.

Infected soybeans may turn yellow and drop their leaves early, but the main problem is yield loss.

"If you pick up the pod and shake it, you can sometimes hear a rattle like a maraca," says Salliana Stetina, head of the university's charcoal rot research.

The fungus, which attacks the roots and lower stems, takes its name from the fact that infected tissues, when split open, look as if they have been dipped in charcoal dust.

Varietal resistance may be the first line of defense. Southern Illinois researchers are screening 100 varieties of Maturity Group III, IV and V soybeans, hoping to develop a range of susceptibility and resistance.

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