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Corn+Soybean Digest

Looking Ahead to 2012


The past year has been a wild ride for grain markets. The bulls held sway through August, but the bears clawed back with one of the greatest September price collapses in history. As the year comes to a close, both the bulls and bears are exhausted and it’s not certain who rules in the current market. Either way, the time has come to put 2011 into the rearview mirror and to draw a bead on marketing your 2012 corn and soybean crops.

I know what you’re thinking, “You want me to start pricing my 2012 crop? It’s too early and in 2010 and 2011, my early sales were my worst sales.” Your recollections are accurate, but your attitude runs contrary to my favorite admonition in grain marketing; forget last year. As volatile and profitable as 2011 was, the only thing I can guarantee about 2012 is that it will not be last year. The year ahead will have different high and low prices, emerging at different times and driven by different events.

Looking ahead to next year fits my “inlook” driven approach to developing a solid marketing plan (see “Marketing Inlook,” Price direction, timing, bull or bear, etc.; these are important factors to the outlook driven marketer. These are the producers trying to figure out which direction the market is headed before making a plan. I look at the economic situation worldwide and say, “Good luck with that approach.” The inlook driven approach to marketing asks you to look inward and consider first your business needs concerning cost of production, storage capacity, cash flow, etc.

Let’s look inward and ahead to 2012.I like pricing a portion of my crop before harvest, but not at a price less than my projected production costs. Projections from the Center for Farm Financial Management indicate that the cost of producing corn and soybeans will rise again in 2012 (see charts).

The cost of producing a bushel of corn in southern Minnesota will be close to $4.60/bu., about $2.75/bu. more than in 2005. Assuming a basis of 50¢ under at harvest, a breakeven new-crop December futures price needs to be above $5.10/bu. Despite the price collapse in September, December 2012 futures are still comfortably above this level.

Soybean production costs are projected to be nearly $9.80/bu. next year – twice the level of just six years ago. Assuming a basis of 80¢ under at harvest, our breakeven for the November 2012 futures contract is $10.60/bu. Like corn, the new-crop soybean contract remains comfortably above the breakeven level.

While it is nice to note that the current market offers a comfortable profit margin in 2012, it doesn’t have to stay this way. I am concerned that comfortable makes complacent. Several highly profitable years have a way of making us ignore margin possibilities we would have killed for just five years ago. 

Are you thinking about last year and hoping for a renewed bull market in 2012? It may happen but I suggest that you forget last year. Hope is not a plan. Look inward and look ahead to some good opportunities to get started right now. 

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