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Forward Contracting Could Be Right Move for 2013

Forward Contracting Could Be Right Move for 2013
Don't get caught in trap of what didn't work last year.

After you've been burnt by forward contracting too early, the tendency is to swear it off as a marketing tool. Either you sold at too low a price, or you sold more bushels than you had and bought back contracts. I understand. In 1983, I pulled the trigger on a rising corn market too soon. I forward contracted on a scare of dry weather, but the scare became reality, and prices went even higher. Fortunately we had enough corn to fill contracts that year.

Look ahead: Just because forward contracting didn't work in 2012 doesn't mean it won't be the best move to make in 2013.

I didn't know any better because I had never experienced a weather scare that turned into real damage. Now I have. If you farmed in 2012, so have you. My father swore in 1983 we would never contract again. We did, and the next time it paid off handsomely.

Chris Hurt, Purdue University ag economist, believes that scenario could play out again. Looking at the 2012 crop and the possibilities, he believes that forward contracting 2013 corn sometime between February and May of 2013 for delivery in December 2013 would have a high probability of success. All you have to do is get by the stigma that you got caught on the wrong side of it in 2012.

He suggests looking at your experiences at forward contracting over time, not just in one season. If you made 25 cents per bushel by forward contracting 10 years in a row, but lost $2.50 in 2012, then you still broke even. You simply gave back what you made in one season.

Paying that elevator back may not be a pleasant thing to do, but it's likely the better option than letting the elevator roll it if they offer into 2013. At some point you've got to deliver the bushels you contracted at the price you contracted them at. He believes it's best just to buy out the contract and look toward 2013.

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