Focus on the market and marketing your 2015 crops: Part one
Corn and soybean markets have over the past several weeks offered farm producers a pricing opportunity; Will they get another chance?
It was fun to experience the high commodity market prices of the past few years. Those higher than normal prices do not seem to be part of the current or nearby futures market as production numbers have changed. In very high market price situations, everyone can price their corn and soybeans for a good profit. We had a couple years where it seemed if you did little or no marketing and just waited until you needed some cash you were rewarded with a good profit. However, 2014 and the first half of 2015 have shown farm producers commodity prices that have been near or even below what some farms may need to cover all production costs and provide a breakeven return.
Every farm has their own breakeven price and we can spend lots of time discussing the different ways to calculate the cost of production. What matters most is the amount of revenue that your farm needs to cover all annual expenses that include debt payments and family living. As we now move the crop toward harvest every farm should have an estimate of that gross income needed for 2015. For most of the state, farms are comfortable with the progress and condition of the crops and now are focused on estimating the yields for the 2015 growing season. The next step is to estimate the revenue each of the various commodities or products the farm produces will generate for the farm. Using a spreadsheet or other tool to estimate the farm’s total cost estimates along with the farms estimated total potential revenues is a great first step in developing a marketing plan. This gives the farm management team some targets of prices that can be considered as profitable and make it easier for the farm to book sales using one or more commodity marketing alternatives to set a price.
Marketing the crops that you produce is a year round job or at least it should be as the end goal of producing any commodity is to sell it profitably. Some farm producers may only consider the marketing alternatives for a crop that has been harvested and in the bin or delivered to the elevator. This takes away about half of the marketing period and alternatives.
After several months of grain prices drifting lower and lower during the first half of the year, locking in current prices are a better situation than were available a few months ago. Any rally in commodity prices should be considered a selling opportunity. As the saying goes; “what goes up, will also come down”. Early sales can be a great tool for a farm to avoid a major down turn in commodity prices that could create a negative financial situation for your farm, which we all want to avoid if possible.
Locking in current prices for the 2015 crop may not end up being the best game in town, but to have some of your crop priced at a profit is a positive defense if the markets turn lower. You can find a monthly commodity outlook report developed by Jim Hilker, Commodity Marketing Specialist, Michigan State University Extension on the webpage as a quick reference along with several other commodity marketing links.
While the development of a marketing plan may not be as much fun as the production side it is vital to the overall success to the farm business.
Other articles in this series:
- Part two: Crop budget & cash flow
- Part three: Implementing a written plan