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Corn+Soybean Digest

Seek market rallies

Think different Nebraska’s David Grimes believes there will eventually be sale opportunities on corn or soybean rallies, even though prices are lower than they’ve been in several years. A $4.50 cash corn price will get him interested. So will $11 cash soybeans. As a farmer in the dry western Corn Belt, he sees rallies over the horizon. He likes the safety net provided by Revenue Protection insurance, but doesn’t consider it part of his marketing program. As with crop-hail protection, he depends on RP for catastrophic situations. 

David Grimes knew he would have some serious corn and soybean marketing to do long before he locked in his Revenue Protection (RP) crop insurance. And he’s ready to make sales if and when the crops make a rally.

Grimes, Minden, Neb., realized RP price levels would much lower than 2013. But that didn’t have much of an impact on his marketing strategy. “I don’t market based on my RP insurance,” he says. “Insurance is to protect price and production risk. The actual market doesn’t really care what I do with insurance.”

 With new-crop corn price futures in the $4.50-$4.60 per bushel range in mid-February and new-crop soybean prices at $11-$11.20, he sees opportunities for price rallies later this spring or summer. “I don’t have anything sold yet,” Grimes says. “With as dry as it has been in the western Corn Belt, we feel there will be some rallies that will provide some marketing opportunities.”

As far as getting corn and soybeans sold, he expects to use a combination of grain elevator contracts and futures or options to price early on. Much will depend on the basis he can lock in.

“If I can lock in $4.50 cash I’ll get some sold,” he says, noting that the local basis is in the 20-25¢-under range. “I would hope to scale up from there if possible.

“I’m also waiting on beans to rally, probably to where I can lock in $11 cash (with a basis that tightens from a current 40-50¢ under). It still all depends on the weather. If we have a good average crop, prices might not move much. But if we see much drought, prices should go up.”

Chris Hurt, Purdue University Extension marketing specialist, encourages growers to monitor prices closely and take advantages of pricing opportunities. “It’s a struggle to make recommendations to price much at this point,” Hurt notes. “The January USDA crop report showed more corn stocks, but the market is not yet convinced we have made the bottom on corn.

“So if we see opportunities to price with December corn futures at $4.70, where futures were trading in mid-December, maybe that’s where you get a little aggressive. Maybe even at $4.60.”

For soybeans, Hurt worries the worst is yet to come. He says, “What if you don’t get the rally you’re waiting on and it goes down, down, down? What if you’re waiting on a 10¢ rally and you see a $2 loss?

“If we see November bean futures get back to $11.40-$11.50, we may want to get started with sales. A lot of things can happen, with good growth patterns in South America and a forecast for more soybean acres in the U.S.  The markets aren’t treating this well.”

Crop insurance help

Grimes has moved most of his farming operation to the south-central Nebraska region from Lincoln. His mostly irrigated ground will likely produce 180-200-bushel corn and 50-60-bushel beans, based on regional irrigated crop averages. He will depend on RP insurance and the government’s production hail insurance for major loss protection.

The USDA Risk Management Agency set the RP price levels based on the average February futures prices for December 2014 corn futures and November 2014 soybean futures (final prices were unavailable at press time).

Grimes went with 70% or higher RP insurance protection. “I usually go at 70-75% coverage,” he says. “I go with Enterprise unites (which considers all fields of one crop in a county) to cheapen the premiums.”

Hurt reminds farmers that their RP insurance most likely will not cover their breakeven levels, meaning sound marketing is needed to generate any type of reasonable profit. He says some growers likely used RP insurance to at least cover all or much of their “cash costs.”

If a grower locked 75% coverage on soybeans, based on an $11 RP level, “that might cover cash costs,” Hurt says. “But even 85% coverage on corn may not. So again, farmers need to watch for market rallies to secure higher sale prices when they can.”

It may come down to cutting production costs and tightening the belt on other expenditures. “They should work diligently to reduce costs,” Hurt says. “Try to negotiate.

“Farmers should look at a few of the activities they were doing when corn was $7 that they might not do now, such as the use of micronutrients, fungicides and other inputs that could have lower returns with low grain prices.” 

For example, can fertilizer costs be cut? Gary Schnitkey, University of Illinois agricultural economist, says lower nutrient costs may help improve profit margins. “Fertilizer costs likely will decline, but cost decreases will not be of the same magnitude as crop-revenue decreases,” he says, noting that corn fertilizer costs may decrease by $60 per acre, while crop corn revenue may be down by more than $300 per acre.

Some fields may have sufficient residual phosphorus and potassium. “If the soil nutrient analysis is high enough for their conditions, it may be the year to draw out of the nutrient soil bank,” Hurt says.

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