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Corn+Soybean Digest

Manage Price Risk To Salvage Profit

'How can I make it with $1.40 corn and $3.80 soybeans?" asked a nervous young farmer from northwestern Iowa before a seminar started in late July.

With cash soybean prices plunging to the lowest level since 1972, making sure that you make the right loan deficiency payment (LDP) decisions and understanding your best merchandising alternatives is more important than ever.

With 1972 prices and 1999 costs, margins are tight, but it can be done. I view this as a four-step process.

First, all farmers should figure the total price per bushel and dollars per acre they can lock in.

Second, be sure to line up and use all possible storage needed to carry the crop into next spring and summer.

Third, stay disciplined and make decisions based on your individual profit position. Producers who were satisfied with the large crop and lower prices and sold early last year made good profits. Those who only looked at the price per bushel held too long.

Fourth, show this written plan to your lender.

Currently, farmers in the western Corn Belt have three positive factors with which to work.

1) Good yield potential, more bushels to sell and more bushels on which to collect LDP.

2) Potential to collect a large LDP at harvest.

3) The likelihood of significant price increases.

As the examples below show, the potential LDP and price gains into next summer are more important than what futures do in regard to impact on total returns to your farm.

The examples are for northwestern Iowa and assume the farmer has his own storage, a $1.80 loan on corn, a $5.10 loan for soybeans, a 60 cent basis this fall and 30 cent basis for June 2000 delivery.

By the end of the seminar, the young farmer said he felt much better and could now show a plan to his banker that would cash flow his farm this year. His final comment was, "I need to learn more about how to sell it because I do know how to grow it."

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