You have a field of corn. You know how much it will cost to produce this crop. You also see that with crop insurance, a little elbow grease, and forward selling you can make $50 per acre. Would you sell today?
Does today’s price provide “enough” profit? I’ve been asking myself that question. I divided price into three segments; the price we need, the price we want, and the price the market pays.
- The price where we need to sell, also known as breakeven. Selling at this level covers fixed and variable costs. Some folks don’t know breakeven costs, which is a problem in itself. A university budget is a good place to start, but the budget needs to be farm specific. Depending on land charges and yield potential, breakeven prices can vary up to $1 per bushel for soybeans for me.
- The price where you want to sell, or the high of the market. I would like $5 corn and $13 soybeans, but those prices aren’t realistic in this environment. The odds of hitting the high in the market are about as good as winning $10,000 at the slots. Is it really a good idea to spend any more time thinking about no. 2?
- The price the market pays, or reality. Sometimes, the market pays a price that results in negative returns. Farmers often sell at this level out of frustration or to limit losses.
Today, despite big surpluses and acres, the corn and especially soybean markets are paying a price that is higher than my breakeven.
The current market price for soybeans is enough. Enough, for me, means a positive margin for cattle, crops, and hay. Conclusion? Staying in the black is better than trying to hit the highs. My personal sell signal is to market commodities when prices are above breakeven and near where I want to sell. “Enough” is different for every farmer, but for me it’s that price that allows me to do what I love for another year.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.