March 12, 2010
Farmers growing corn and soybeans in 2010 should start considering the challenge of marketing the beans, according to market-plan ideas from a University of Missouri crop economist.
While there is upside price potential, soybean price volatility could lead to significant downside risks.
Melvin Brees, market watcher at the MU Food and Agricultural Policy Research Institute (FAPRI), says market planning is uncertain at best and carries price risk. However, he urges farmers to prepare written plans to guide sales through the coming year.
While U.S. soybean ending stocks of 210 million bushels are below average, there is expected record production with export competition coming from South America. Also, the expected U.S. soybean plantings in 2010 will lead to another year of large production. Declining livestock feeding cuts soy meal usage.
The corn outlook remains more stable, with carry-over more than adequate and increasing ethanol demand expected.
A starting point for a market plan is to know a farm’s break-even cost. This helps determine profit margins to be achieved with any crop.
Too often the only plan is to sell on the day the market hits the highest point of the year, Brees said. Spreading marketing over the year reduces risk.
Brees recommends setting price goals on the upside. That locks in a profit for at least part of the crop. Equally important is setting a “trap price” on the downside. That protects a minimum profit above breakeven.
Setting those goals isn’t an easy decision, Brees admits. Pulling the trigger when goals are reached becomes more difficult.
Current projections for soybean prices run from $8.60 to $9 per bushel. Those should be well above farm break-even points. However, some farm-price outlooks see $7.75 or lower at the bottom of the range.
“Profitable prices can be locked in,” Brees said.
Crop break-even points can be determined by using budgets available from the MU FAPRI Web site. Based on projected average Missouri prices, the budgeted breakeven for soybeans shows $6.42 per bushel.
Actual costs from a farm are best used for calculating those break-even points. “Prices vary considerably from farm to farm depending on yields and production costs,” Brees said. “Owning, share leasing or cash renting land affects cash flow and break-even costs.”
When to sell is another decision. Historical price trends show seasonal highs in the months before harvest. Pre-harvest highs often come before and during planting. Prices rise again in June and July, especially with drought scares. Prices usually decline through harvest. Brees thinks that without weather problems the high soybean prices seen earlier this year are not likely to return.
Ideas on the Brees market plans are available in the Farmers’ Corner.
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