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Corn+Soybean Digest

Looking Ahead To 2010 And Pricing Corn

June 8 was a final decision date for my 2009 preharvest marketing plan for corn. I made a sale of December 2009 corn futures at $4.58/bu. – well above my minimum price objective of $3.95, but not nearly as high as the $6.45 level at which I made my first sales last August. I am now 75% priced on my mythical 2009 corn at an average December 2009 futures price of just over $5/bu., or a cash price of $4.50-4.60/bu. at harvest. I think it is time to turn my attention to 2010.

Every producer struggles with the question of when to start pricing a crop. On one extreme is the farmer who says, “You can’t price what you don’t have.” These are producers who start the process at harvesttime. At the other extreme are those who note that futures quotes and pricing opportunities are available for 2009, 2010, 2011 and 2012 corn (quotes for 2011 corn started in July of last year and I saw the first quotes for December 2012 corn futures June 9). I am not comfortable reaching out more than two crop years. To look out as far as 2011 or 2012 demands a high level of confidence in crop rotations, input costs and government program support.

That said, it is time to look ahead to the 2010 corn crop and pricing opportunities. Fertlizer quotes for fall 2009 application are readily available, and nitrogen and DAP prices are back to levels last seen in 2007. Only potash prices remain stubbornly high. If I have a handle on rent and fertilizer prices, I have a pretty good handle on my 2010 production costs. I used the FINBIN data base (the most important and underutilized tool available to farmers) to estimate production costs for corn in southern Minnesota. Assuming four-year average yields of 175 bu./acre, I estimate that I can produce a bushel of corn for $3.60-3.70. This figure assumes a direct government payment of about $20/acre, and includes a labor and management charge of $40/acre.

Based on the cost of production analysis, I wrote a preharvest marketing plan for 2010 corn. My minimum price objective for 2010 is a cash corn price of $3.65/bu. (consistent with COP analysis). Assuming a harvest basis of 40¢ under the December 2010 contract translates into a futures price minimum of $4.05.bu.

With December 2010 futures currently trading near the $4.55 level, a sale at current 2010 futures prices can lock in a profit level of nearly 50¢/bu. Last year aside, the market rarely gives corn farmers an opportunity to lock-in profit levels of more than 25¢. I took action in early June to price roughly 20% of the 2010 crop. I suggest that anyone who chooses to price corn for 2010 also lock-in their fertilizer needs at the same time. My interest in 2010 is not driven by price alone, rather the estimated margin over input costs.

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