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Corn+Soybean Digest

Long-term Marketing is Back

Growers wanting to lock in multi-year or even multi-month grain contracts when prices surged in 2008 were often turned away by margin-requirement-strapped grain elevators. But with corn and soybean prices at more manageable levels, elevators aren't as squeamish about offering year-out deals.

Problem is, most growers aren't interested in long-term pricing due to the depressed markets. However, with market rallies — which nearly always occur — there are more opportunities to lock in 2010 crops early, and maybe even some contracts into 2011.

Mike Franzluebbers, AGP grain merchandiser and marketing specialist in Omaha, NE, says long-term marketing was re-established by AGP last summer (2009). “We're contracting corn for the 2010 crop and are not taking any fees for it,” he says, noting that some growers took advantage of market rallies in October after frost conditions hit northern production areas.

“We're feeling more comfortable in offering long-term contracts with the prices at half what they were in 2008. It makes you feel a little better about the margin requirements,” he says.

Scott Docherty, general manager of Topflight Grain Cooperative in Monticello, IL, says the co-op's grower clients have the freedom to secure distant markets. “We are offering 2010 fall bids if they want to lock in some cash flow needs or for other reasons,” he says.

SUCH NEWS IS pleasing to growers like Randy Colyer, an East Cape Girardeau, IL, producer who was among those shut out of long-term sales in 2008. “I have talked with my elevator and it's good to know I can lock in all or part of the 2010 crop if I want,” says Colyer, who normally markets corn, soybeans and wheat through a Consolidated Grain & Barge facility in Cape Girardeau, MO.

He rotates beans, corn and wheat on several thousand acres along the Mississippi River in southern Illinois. Colyer got much of his 2009 crop booked early for January 2010 delivery. “We got some $11.02/bu. soybean sales made, as well as some in the $10.80 range,” he says. “We got corn booked at $4.26/bu. for January delivery.”

He got more beans sold when the $10 futures level was topped late last year. He adds that he got a jump on 2010 corn sales and even some 2011 soybean deliveries. “We contracted to deliver some corn in September for $4 out of the field,” he says. “We got some beans contracted for January 2011 delivery at $10.46.

“I'm watching the markets every day for the potential for more sales,” says Colyer.

Topflight's Docherty says the elevator company has various marketing plans for growers. “We offer the different types of contracts for our producers,” he says. “They can go with basis contracts if they want. They can forward contract corn, beans or wheat with upside potential. There are ‘mini-max’ programs that set a floor and a ceiling within the basis locked in.”

But when prices stagnated at lower levels there wasn't much interest. Docherty says the company anticipated sales from the 2009 harvest as half of what they were in 2008, so more grain was expected to be stored.

Franzluebbers says AGP's many marketing programs are also sitting idle because of lower prices. “Farmers are not selling as much,” he says. “We have record corn and record bean crops that are holding prices down.”

Ed Usset, University of Minnesota agricultural economist and grain marketing specialist, says disinterest in long-term marketing is evident in most production areas.

“Long-term contracting has loosened up around here,” he says. “I think most anyone will go out a year right now. The great irony is, now that you can, you don't want to.”

WITH THE HUGE 2009 crops (corn projected at over 13 billion bushels and soybeans over 3.2 billion bushels), he advises growers to watch for price spikes, like those seen late last year. “The $4 range for December 2010 corn futures is the right territory for a portion of the 2010 crop,” says Usset, depending on corn cost of production.

“That's somewhere near $3.60 cash locked in (depending on your basis). That will work for a lot of people. It's not a fat margin, but it's a positive margin. You just hope you're foolishly too cheap.”

For soybeans, he says growers should also measure their production costs to look at profit potential. Usset urges growers to look at their breakeven levels for corn and beans.

“The soybean market had been flat,” Usset says. “When it was at $9.50, it was barely at the point to where you hold your nose and get some sold, maybe 10% of the crop and hope you're wrong. Both the $9.50 soybean and $4 corn futures are near the breakeven levels for a lot of people.”

As far as distant contracting from elevators goes, he sees competition as a way for growers to find good contracts when there are rallies.

“More will loosen up,” says Usset. “It becomes a competitive thing. It's hard to manage an elevator 15 miles down the road from another and not do what your competitor is doing. It's a risk to not offer hedge-to-arrive contracts if someone down the road does.”

Melvin Brees, University of Missouri agricultural economist, notes that large grain companies like Cargill and ADM would probably offer long-term marketing through their various marketing plans.

“Most preharvest marketing is still through the cash market with traditional forward sales contracts,” says Brees. “We could see some more hedge-to-arrives where growers can set the basis later on.

“If there's a demand for longer-term contracts and an elevator thinks it can finance it, we may see more or it,” he says.

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