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Corn+Soybean Digest

'I Should Have Sold More'

With harvest prices in the deepest pits, proverbial 20-20 hindsight tells corn and soybean growers they should have marketed most of their crop before planting.

Even paying a normally steep 20-25 cents/bu for $2.60-2.70 December corn put options way back in January would have generated an extra $1/bu at harvest. And shelling out 30-40 cents for a $6.25 November soybean put in early summer also would have meant an extra $1/bu or more.

Growers must now take a "can't change history" attitude and progress with strategies to salvage any additional revenue from the '98 corn crop, expected to top 9.7 billion bushels. The same goes for soybeans, pegged at 2.9 billion-plus.

Grain marketing experts say farmers should not make the same mistake twice. Be more prudent marketers leading into the next millennium.

The marketing strategies of three Nebraska growers mirror those of countless others who did not pull the trigger on time. They did some early marketing, but not near enough, then watched the market drop while waiting for the right rally.

Alan Kluis, president of NorthStar Commodity Investment Co., Minneapolis, believes "El Nino hype" held many growers back.

"So did frustration that they had missed $4 and $5 corn (several years ago)," says Kluis.

Steve Weides, who farms 600 acres near Lexington, NE, forward-contracted 20% of his corn at $2.50 and $2.60 with local elevators in early spring.

"I wish I had sold more," he says. "I'll sell the remaining corn to local feedyards and store some for sales well into '99."

A neighboring feedyard provides an attractive marketing alternative. About 25% of his overall crop is sold to Dawson Feeders in Lexington. He can deliver all or part of it at harvest, then price 20% or more of it per month over a five-month period. All must be priced within five months.

Sales are based on the average local price.

"That enables me to wait for a better price without having to store the corn or buy call options (in anticipation of upward price moves)," says Weides. "I'll store the remainder of my corn and price it over a 10-month period to stagger sales."

With harvest prices at $1.50 or lower, Weides and other growers are taking their loan deficiency payments (LDPs), or the difference between the $1.89/bu national corn loan rate and the local average harvest price. The extra 30-40 cents helps, but won't cover cost of production, especially for irrigated growers like Weides.

Randy McDonald of Phillips, NE, grows 1,500-2,000 corn acres annually. He recently hired a marketing consulting service to ease pricing headaches. But he's certainly not complaining about the 25% of his crop he forward-contracted himself at $2.50 and $2.70 in January and February.

"We just did not get enough sold," says McDonald, noting that all corn will have been LDP'd by harvest's end.

"We'll store corn not already marketed, then wait for sale opportunities next year. We'll consider going with call options early next year if a strong rally appears likely. There will also be sales to the elevator as prices increase."

Claude Cappel also wishes he had marketed his corn earlier. He didn't make his initial sale until August, when he forward-contracted a third of his 2,900 acres of corn at $1.94.

Like many others, this McCook, NE, grower felt prices would hold up after early year and early summer rallies approached $2.70. However, the Midwestern drought fears on top of some late planting didn't set back production as some predicted. And foreign grain sales weakened due to the Asian economic crisis.

An abnormally wide basis of 25 cents under futures in midyear and 45 cents under at harvest also caused Cappel to hold back from futures sales. To repair the damage, Cappel, who farms with his sons, Steve and Rodney, will store corn not sold and wait for higher prices through the spring and early summer.

"We will make cash sales when prices approach $2.25 or higher," he says, "and also look at selling futures to possibly lock in part of the '99 crop early on."

Storage sales for corn and soybeans appear to be the best immediate marketing opportunities in the eyes of NorthStar's Kluis, Pro Farmer's Chip Flory and University of Illinois ag economist Darrel Good.

"Don't look at immediate cash sales, but at what the cash bids are out into the May-June-July period," Kluis advises. "Look at May and July prices in the $2.30-2.40 range, then market 20-40% of the remaining corn via forward contracts. Then, if we get a weather scare and prices increase, place put options on an additional 20-40%."

Flory, located in Cedar Falls, IA, says forward contracts based off May futures on both corn and soybeans should be considered.

"Check out deferred bids for May in the $2.30 range," he says, "because in the cash market, we're seeing a better bid than out of the March, which is about $2.20. In this market, it's worth doing all you can to pick up another 9-10 cents."

For soybeans, May futures were about $5.60 in midharvest.

"That's a 30 cent spread over November futures," says Flory. "So if you have storage, the market is giving you the incentive to keep it in there, then consider forward contracts for deferred delivery."

There are hedge-to-arrive (HTA) opportunities for the current soybean and corn crops.

"Go out to the July soybean contract (which was $5.67 in late September)," he suggests, "because it is 7-10 cents over the May. The same goes for corn, which is 6-7 cents higher than the May contract."

With HTAs, elevators make the futures trades for growers, who may then wait to set a favorable basis.

"Do a smart HTA and deliver the grain in July," says Flory. "Don't roll it out to December because there could be problems (similar to those that hit growers and elevators in 1995 and 1996)."

Good, an Illinois extension economist, agrees that HTAs could be a good marketing tool.

"Plan to deliver in July and set a basis and your cash price when it narrows (probably in the spring)," he says.

While holding the '98 crop offers later, yet promising marketing opportunities, getting part of 1999's crop booked early should be a priority.

"We're already looking at '99 sales through either forward contracts or buying put options," says McDonald. He'll likely book '99 corn when he can lock in a $2.50 or better cash price. "I hope to have half the crop priced before the end of spring."

Weides has no definite marketing plans for '99, but will pull the trigger earlier if distant months are attractive. Cappel will look at early forward contracts if there are December '99 futures rallies.

"If we do get some rallies, then they should consider getting priced ahead on Dec. '99 corn at $2.50-2.60 and Nov. '99 beans at $5.90-6," says Kluis.

He and Flory agree that, because of a poor basis, futures or options should be used to take advantage of early year pricing opportunities for '99 corn and beans.

"The market considers projections for '98-99 (yields and carryover) to be burdensome," says Flory. "When growers lock in those higher prices, they should check the basis. If it is poor, don't use the cash market. Use futures or put options."

Cappel and McDonald will decide whether to add soybeans to their acres if bean prices are attractive enough and to take advantage of Roundup Ready varieties to hold down costs. Weides is unsure about beans for '99, but the $6-plus range could sway him.

"Marketing is different every year," says Weides. "I've tried it all. I just need to use the various marketing tools to spread my sales over a 10- to 12-month period to try to get a good average price."

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