Selling grain above the cost of production presents challenges for Southwest farmers this year, but it can be done.
Texas AgriLife Extension economist Mark Welch says producers will see opportunities during the season to use available marketing tools to lock in decent prices. Wheat and corn growers have already had one opportunity early in the year to lock in a better price. “Prices are better now than they were last year.”
Any marketing strategy, he adds, begins with a bit of soul searching. “Know the cost of production. Look at average yields; know what’s reasonable; and know what you need out of the market.”
With those figures in mind, growers can look for opportunities. “Watch the futures market. If you see a bump above the cost of production, lock in some grain.”
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Welch says in a normal year with normal growing conditions, market bumps occur. Weather scares, for instance, may push the market up. “Early in 2015 was a good time to lock in prices with a corn and a wheat rally. There is likely to be something else during the season to create movement.”
Cash market holds opportunities
Basis also offers opportunity. “We have a strong basis in Texas,” Welch says. That basis advantage could be as much as 40 cents.
“Pay attention to the cash market,” he notes. “If you can capitalize on the strong basis, take advantage of it. Be mindful of both the futures and the cash market.”
Cashing in basis opportunities may take some legwork. Welch suggests grain producers check with elevators, feedyards and other grain users to find favorable prices. “Dig a little deeper; do more than just deliver grain to the elevator in October; look for opportunities. Producers have a lot of tools available.”
Even with grain prices down from recent highs. Welch is optimistic about Texas grain production. “Demand is strong with a strong livestock industry, cattle and poultry. We also have export opportunities, especially Mexico. That’s been a strong market. Mexico has had economic issues lately but location is a key. They need us, and we need them.”
Improved varieties, more adaptable to Texas conditions, also offer advantages for corn production. “Texas is a tough environment for corn, but drought resistance research offers promise. Also, products to manage aflatoxin have reduced potential for infection.”
Markets in 2015 could improve. U. S. acreage will be down; 1.6 million acres less than last year. Another record crop could make up for some of that reduction. But that’s not a given. “History suggests yields will be closer to normal.”
Brazil acreage likely will decline. “And Ukraine production is a question mark.” So bumps are possible. Good yields will be necessary to pencil in a profit, however. “Production has to stay up,” Welch says. Fortunately, conditions are more favorable going into planting season than they have been for the past few years. “Overall, Texas has better soil moisture conditions than in a good while. Wheat looks good across the state, but the next 30 days will tell the tale. We need above average grain crops to make up for lost revenues. We need the yield.”
Grain acreage up for ‘15
Texas grain acreage will be up in 2015. “We will see more sorghum, coming off strong prices.” Corn may increase, too. “It’s a hard call to see where the increased acreage will come from. Some will shift out of cotton.”
The interest in grain for Texas producers, especially in corn, may be “because corn is easier to grow than cotton,” Welch says. “It still requires attention, however.”
The sugarcane aphid may influence sorghum acreage. “If anything affects sorghum acreage, that’s what it will be.” Sorghum producers have effective insecticides available, but aphid control adds to production costs, Welch says.
Alternative crops may have a place on some grain farms, too. “Canola offers good opportunities. Sunflowers, sesame and guar are other options. Look at those and take advantage of new opportunities,” Welch says. “But understand that alternative crops require more management, not less.
"Soybeans have a place in Texas; interest is increasing in South Texas, the Coastal Bend, and other areas. Soybeans may be a good option."
Soybean production offers an opportunity to break up pest problems. Most pest problems we have in Texas can be addressed.” Rotation to a different crop, such as soybeans, is one way to reduce pressure from weeds, diseases and insects.
Texas grain producers have several challenges for 2015, including lower prices and a new farm program that will take some adjustment. “Prices from insurance also will be lower,” Welch says. In the past, a direct payment offered farmers and their lenders some early season security. “Now, the crop insurance guarantee will be less than the cost of production. Producers are optimistic about putting in the crop, but lenders are concerned about security for operating loans,” Welch says. “That could be a challenge this spring.”