Dakota Farmer

Corn marketing plan generates $1,500 per acre

Farmer and broker David Krause has provided a rundown of how to make money in a bear market.

Lon Tonneson

May 18, 2020

4 Min Read
Ear of field corn
2020 PLAN: South Dakota Corn recently published a corn marketing plan from David Krause, co-owner of CommStock Investments and a farmer himself since 1973. Krause’s 2020 marketing plan is all about making money in a bear market.Lon Tonneson

A detailed marketing plan that generates as much as $1,500 per acre for 2020 corn got my attention recently.

The plan is from David Kruse, chairman and co-owner of CommStock Investments based in Royal, Iowa. He has farmed since 1973 and has been a commodity broker and adviser since 1985.

South Dakota Corn published the details of his plan as part of a recent blog titled, “Recovery will take time, effort.”

“Here are my numbers for my projected corn revenue in my 2021/2022 marketing plan,” Kruse wrote.

“I have a 233 bushel per acre approved yield on the home farm that I grew up on. 233 bushels per acre [times] 85% Multiple Peril Crop Insurance [MCPI] coverage [equals] 198 bushels [times] the $3.88 per bushel guaranteed price [equals] a $768 per acre revenue guarantee.

“Given the April 25 planting date, I estimate yield potential at 240 bushels per acre with little or no drying cost. I think that December futures could trade at $2.50 per bushel this fall at harvest.

“240 bushels per acre [times] $2.50 per bushel [equals] $600 per acre. The $768 per acre guarantee minus $600 per acre production revenue for insurance purposes would generate a $168 [per] acre MCPI Revenue Indemnity payment.

“Now let’s do some Prices Loss Coverage [PLC] math using a 180 bushel per acre farm base yield [times] 75%. The PLC trigger price is $3.70 per bushel and I estimate $2.50 per bushel at harvest, which would result in a $1.20 per bushel payment. The PLC yield of 180 bushels per acre [times] $1.20 per bushel [times] 85% = $183.60 X 75% [equals] a $137 per acre payment.

“I have my 2020 corn 100% hedged at $3.70 basis December, which at $2.50 per bushel this fall would be a $1.20 per bushel hedge profit [times] 240 bushels per acre [equals] $288 per acre.

“So, I have potential for a $168 per acre MCPI revenue payment, a $137 per acre PLC payment and a $288 per acre hedge revenue before I have sold the crop. Were I to sell with a 50-cent harvest basis, that would be 240 bushels per acre [times] $2 bushel, or $480 per acre.

“Revenue would then be $168 [plus] $137 [plus] $288 [plus] $480 [equals] $1,073 acre.

“Now, add a ‘Please-Vote-For-Me’ Commodity Credit Corporation [CCC] payment from DJT [President Donald J. Trump].

“I am not done yet. I have on-farm storage for this corn, so I will bin it and pick up both basis improvement and carry into 2021. I think that my final net corn revenue could be near $1,200 acre.

“This is marketing. This is how that you make money in a bear market. Most are desperate for a bottom in the corn market. My $1,200 per acre divided by 240 bushels per acre is $5 per bushel for my new crop.

“The crop is not in the bin and my yield and the harvest price is unknown. Plans never work out perfectly, but I have [a plan] and it doesn’t depend on a Hail Mary turnaround in the corn market.

“There are things that keep me awake at night, but my farm’s bottom line is not one of them.

“What if I get hail like last year? I spent $21 per acre for $900 per acre no-deductible hail insurance. Let it hail. Do the math. With the MCPI, PLC, CCC payments and hedge profits, getting hailed out could generate $1,500 per acre revenue.

“This is not the ag depression of the 1980s because of the safety net and marketing tools that [were] set up for corn growers. Corn growers have one of the best safety nets in agriculture.

“Put your numbers together. You get [whatever] percentage revenue coverage that you paid for. You should have signed up for PLC. You will get a CCC payment and hedge rallies as China buys for Phase-1 catch-up sales.

“What happens if the corn guaranteed price set next February is $2.88 instead of $3.88 per bushel like this year? I have hedged my 2022 crop in July 2022 at 3.91 per bushel. The way that I looked at it is if the ethanol industry consumption is down hundreds of millions of bushels, general livestock liquidation reduces feed usage, the strong dollar gives our export competitors the edge while making our corn more expensive to our customers while we plant plenty of acres and the April planting date gives us a trendline-plus yield — why would the price of corn be at a pre-COVID-19 price level? No one using corn is profitable. If the price of corn is a function of end-user profitability, then it is still too high.

“I am going to keep growing corn and I can still discern a way to be profitable for two years. I think beyond that will take care of itself. That is my marketing plan.”

What do you think of Krause’s plan? Maybe I am not understanding something about agriculture here, but if the grain you grow, milk you produce or the livestock you raise doesn’t have this kind of safety net maybe it’s time it did.

Email me at [email protected] or call 701-361-1105.

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