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Corn+Soybean Digest

Day by Day, Bit by Bit | Long-term Corn and Soybean Marketing Spreads Pricing Risk

Ken Davis’ 2010 corn and soybean marketing started in November – of 2008. Even with over 30 sales, about half his production remains unbooked to allow for rallies he anticipates next year.

The Leesburg, OH, farmer grows corn and beans with his son Evan, and receives input from his father Joe. And when the mid-summer crop report caused a 30¢/bu. bump in corn futures in early July, he priced much of his remaining 2009 corn due for summer delivery.

Growers should look for greater marketing opportunities for old- and new-crop corn and beans, says Matt Roberts, Ohio State University Extension economist.

Davis’ corn yields in southwestern Ohio have surpassed 160-175 bu. in recent years and his beans were in the mid-50s. It’s marketing that usually worries him more. So he takes multiple routes to arrive at orderly sales that broaden his risk.

“I’m not a marketing guru,” he says. “Markets go up and down, so I spread sales over a long period and use good marketing advisors.”

He works through Cargill ag marketing programs, Allendale, Inc., and his personal commodity broker. He also subscribes to other marketing services for marketing advice.

Talk about spreads! Davis’ corn and bean sales include more than 30 different sales beginning nearly two years ago. He doesn’t expect to complete 2010 sales until well into 2011. For corn sales already made with established prices, he averaged $4.18/bu. Bean prices booked were in the $9.45-10/bu. range.

“My first corn sale was in November 2008, about 15,000 bu. of 2010 corn production for December delivery and 4,000 bu. of soybeans for November delivery,” he says. Those sales were part of a Cargill program, in which prices can be set at any time later, based off futures prices. Davis was in no hurry. Neither of the contracts had seen their prices set through early July 2010.

Remaining corn sales involved those types of contracts, as well as hedge to arrives (HTA), cash sales and a straight futures hedge. They included:

  • March 2009: $4.05/bu. cash sale of 10,000 bu. for October 2010 delivery
  • October 2009: $4.20 HTA on 10,000 bu. for December 2010 delivery and a $4.20 HTA on 2,000 bu. for December 2010 delivery
  • November 2009: a price-later sale of 2,500 bu. for December 2010 delivery, a price-later sale of 2,000 bu. for December 2010 delivery and a price-later sale of 5,000 bu. for December 2010 delivery.

Further corn sales included: December 2009, $4.44 cash sale of 5,000 bu. for October-November (O-N) 2010 delivery, $4.53 cash sale of 3,000 bu. for January 2011 delivery, three $4.44 cash sales of 2,000 bu. each for O-N 2010 delivery and a $4.53 cash sale of 2,000 bu. for January 2011 delivery. Four other corn sales in March 2009 included a straight December 2010 futures hedge at $4.01 and three $4.02 HTAs on 2,000 bu. each for December 2010 delivery.

That was 21 different sales to account for about 55% of his expected production. Twelve other sales were made on soybean contracts, including the initial 4,000-bu. contract, to cover about 47% of his expected bean production.

Other soybean sales included:

  • December 2008: $10 HTA on 3,000 bu. for November 2010 delivery
  • October 2009: $10 HTA on 3,000 bu. for November 2010 delivery
  • November 2009: $10.39 HTA on 3,000 bu. for November 2010 delivery, two price-later sales of 1,000 bu. each and delivery to be set and two more price-later sales of 2,000 bu. each for November 2010 delivery
  • March 2010: four $9.45 HTAs on 2,000 bu. each for November 2010 delivery.

“I have trouble pulling the trigger,” quips Davis. “But I work with a local Cargill representative to ‘hold my hand.’ He calls me, explains the situation and makes specific sales and basis recommendations.”

Davis is fortunate to have several markets nearby, and basis levels can change quickly. A large ethanol plant in Bloomington, OH, a corn sweetener plant in Dayton and the Ohio River market at Cincinnati provide good marketing avenues.

“We can sometimes see 5-7¢ over (futures) basis at the ethanol plant,” he says, noting that it had been 20-25¢ over in the past.

Davis learned a lot about marketing from his father, who used long-term selling 20-30 years ago, long before the huge price volatility seen today.

With sufficient on-farm storage, Davis expects to delay some 2010 sales into 2011 through contract rolls. “We expect to see prices rally and should see better marketing opportunities when that happens.”

There’s still a lot of his corn and beans not handled by the marketing service. For that, Davis uses information from Allendale and his personal broker to develop options strategies to protect his floor price and be open to an upside rally.

“We have some corn marketed using spreads in which we buy puts and sell calls to create a marketing window,” says Davis.

He says some 2011 and 2012 sales have been made, and there was still some 2009 corn that was moved the day after the bullish June 30 USDA crop report that showed fewer corn acres and fewer supplies.

“We set the basis on a lot of 2009 corn we had in storage at about 10¢ over after December futures increased by nearly 30¢ following the report,” says Davis. “That corn was hedged for July (2010) delivery and we sold it for $4-4.25 to the regional ethanol plant.”


Farmers who don’t have the time or expertise to market their corn and soybeans have access to many marketing services offered by large and small grain handlers and users. But growers should do their homework before obligating their crops in return for marketing advice, says Art Barnaby, Kansas State University Extension economist.

“First of all, delivery is a consideration in many parts of the country. If the crop fails, what’s the obligation of the farmer,” he asks. “How is the cancellation penalty calculated? Which party is subject to the basis risk? Is basis open or fixed?”

Matt Roberts, Ohio State University Extension economist, adds that growers should know their overall balance sheet before signing up for such a service. “It’s likely that some farmers using these services may be taking too little risk, while others are taking too much risk,” he says.

“It can be worrisome if you have someone else market for you. They’re probably only looking at part of your marketing equation and may not be familiar with your profit and loss numbers or cash flow.

“Someone with a strong balance sheet has the flexibility to incur losses, so he can afford to take more risk. Young producers with a weaker balance sheet or predominately cash rent cannot afford to take big financial risk,” he adds.

Roberts says these types of growers are likely operating on thinner margins, “and when they see profitable prices, they need to lock them in.”

Third-party stability? Smaller grain companies offering marketing programs likely have a third party handling much of their risk, says Barnaby. “Make sure the counter party will be there to stand behind the contract when the time comes,” he says, noting that the marketing stability of larger entities don’t concern him.

“It’s the smaller elevator or ethanol plants that do,” he says.

August 2010

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