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Corn+Soybean Digest

Try Multi-Year Marketing

“We have corn sold for the next three years.” Mike Martin doesn't blink an eye when he yields that information about his operation's distant marketing moves with futures prices in the $4/bu. range on the table. The Bernie, MO, grower, who farms with his brothers Tim and David, and father Sonny, is confident that $4 will work during what is expected to continue as a highly volatile grain market in the years ahead.

The Martins grow corn, soybeans, wheat, rice and sometimes cotton. They also operate a rice processing facility and ship various types and quantities of rice products nationwide. The growers acquired an old grain elevator in nearby Dexter, MO, to expand their storage capacity, making distant marketing feasible.

“Having adequate storage is critical in a plan to have multi-year marketing,” says Martin.

The Martins were like other growers who expanded their corn acres in 2007. It was after the ethanol explosion caused unheard of high-price trends for corn from fall 2006 on. The producers plan to maintain the strong corn acreage for 2008 and leave their soybean and wheat acres nearly the same.

THE BROTHERS' MULTI-YEAR corn marketing involved selling December futures contracts for some of their 2008, 2009 and even 2010 production. Sales were locked in during spring and early summer 2007. Sales were limited to 35-40% of their potential corn production, Martin says.

“We sometimes swing our acres based on what we think will happen with a particular crop,” he says. “So we contracted futures on probably 35-40% of what we would normally grow. It could wind up being a little more or a little less. You just hate not to sell something when you know you can lock in a fairly decent margin.”

The use of multi-year marketing when the price is right is in the plans of other growers nationwide. Curtis McGill, grain marketing merchant for Attebury Grain, LLC, Amarillo, TX, works with growers who market through the company's network of elevators and terminals.

“We've had some growers book 2008 corn, but not for 2009,” says McGill. “They are for prices in the $4-4.30 range. Some are hedge-to-arrive, but most are straightforward contracts. They believe prices in that area will work for them.”

In late October 2007, Decembers 2008, 2009 and 2010 Chicago Board of Trade (CBOT) corn futures contracts were in the $4.15-4.20 range. Along with ethanol, large-fund investor interest and export demand helped pull prices even higher during harvest.

However, Bob Wisner, Iowa State University grain marketing professor emeritus, says depending on ethanol prices to maintain a high corn price long-term may not be wise.

He warns that “corn prices will be influenced some by the sharp drop in profitability of ethanol plants,” he says.

“With profit margins likely to turn negative for some plants, the depressed ethanol profit margins are likely to be a tempering influence on corn prices in the next six to nine months,” he adds.

“In the months and years ahead, corn and soybean prices will be sensitive to weather in Brazil and Argentina,” says Wisner. “With their seasons reversed six months from ours, our fall is their planting time.

“Dry weather in the northern part of Brazil's soybean belt has delayed plantings and strengthened soybean prices. But this winter and early spring, extremely strong export demand for U.S. corn and concern about reduced corn acres in 2008 will likely be offsetting influences,” Wisner says.

Distant-year marketing strategies can depend on whether land is owned or rented. Cash-rent rates for 2007 have been $350/acre or even higher in some areas of the Corn Belt. Land prices have followed corn up, as have fertilizer (also hit hard by oil prices), seed and other inputs, not to mention the cost of diesel.

“It's hard to turn down the opportunity to market corn at near $4,” says Martin. “However, you have to take into account what your expenses may be that far out. You can't be sure if fertilizer costs will double or triple again like they have the past year or so. If you have corn sold for $4 and it's actually worth $6, it was a bad decision. But you have to think that $4 is a good price for a portion of your crop.”

Darrel Good, University of Illinois Extension economist, says an expected drop in corn acres for 2008 should help keep prices sturdy, even though soybean and wheat prices appear as strong or stronger.

“A realistic forecast for corn trend yield might be about 152 bu./acre,” says Good. “At that level, harvested acreage of 85.36 million acres would be needed to produce a crop of 12.975 billion bushels in 2008, implying that planted acreage could drop by no more than 1 million acres.

“If a 155-bu. yield is expected, acreage could drop by about 2.6 million and still produce a crop of 12.975 billion bushels,” he says. “If year-ending stocks are near 2 billion bushels, as projected by USDA, acreage could decline by 4.2 million acres in 2008 and still produce the needed supply.”

GOOD SAYS THAT with December 2008 corn futures above $4, “corn still appears to be potentially more profitable than soybeans in the heart of the Corn Belt for 2008.

“The strength in competition for U.S. corn acres in 2008 will depend on the magnitude of increase in U.S. winter wheat acreage and the magnitude of increase in South American corn and soybean acreage,” he adds.

“In a perfect world, U.S. producers would forgo an increase in wheat acres and devote acreage to corn and soybeans, since a number of other countries can competitively produce wheat. That does not appear likely to happen, however,” he says.

The Martins, who grow a lot of double-crop beans after wheat, are expanding their bean acres with more early planted beans. “We can make 10-12 more bushels of conventional bean acres over those double-cropped with wheat,” says Martin. “We feel those early planted soybeans will be worth more money than the wheat-bean rotation.”

Martin adds that even with the uncertainty of what corn prices will read in late 2008 and beyond, the $4 distant futures contracts are good places to start marketing for crops yet to be planted. He adds that there is plenty of time to alter those positions if there are strong price shifts one way or another.

McGill adds that if the strong price trends continue, more growers may opt for multi-year marketing.

“More growers in the new generation of growers are using the various marketing tools available through their elevators and other grain buyers,” he says. “Multi-year marketing could be in more of their plans.”

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