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Using marketing plans to take advantage of current markets

 by Dave Bau, Extension Educator, Ag Business Management, U of M Extension Regional Office, Worthington

Farmers should develop a marketing plan to take advantage of great prices offered for 2021 and 2022 crops. Marketing plans have many components. What should a farmer include in a marketing plan?

Cash flow needs: When starting a marketing plan, a major factor contributing to when a farmer sells crops is when there is a payment or cash flow demand. Start a marketing plan with a list of when cash needs to be generated.

Total expected bushels of crops grown: Use historical five to seven year crop yields or insurance proven yields as a starting point for the expected production for the farm.

Breakeven price determination: How does a farmer know what a good price is to market crops? By using estimated yields and acres, along with expenses and family living costs, a farmer can determine breakeven prices. 

Insurance coverage: Crop insurance coverage can provide a farmer with confidence in marketing the crop before it is harvested. With many different revenue assurance coverages available, a farmer is guaranteed a certain amount of income. This will provide a farmer a level of confidence for pre-harvest marketing.

Target prices: Once a breakeven price has been determined, target prices can be established. Target prices are sometimes set at levels below breakeven levels due the current market situation. Target prices are goals that, when met, will cause the sale of a predetermined portion of the crop in the marketing plan.

Decision dates: Decision dates establish a date when a farmer should decide to establish a price for a portion of their crop. The main goal is to spread out the decisions during March through May. Picking different dates is another way people can adapt the plan to their personal situation.

Default dates: Default dates need to be established to force action in a marketing plan, so a farmer does not miss a historically good time to establish a price for their crop.

Basis: Tracking your local basis is another important component of achieving improved average cash prices on your farm. There was a lot of volatility in the corn basis in 2010 and 2008 crop years and a narrower than normal soybean basis in summer, but historically the basis is widest at harvest, improves until July and then widens again until harvest. Tracking your basis and utilizing various marketing tools like Hedge to Arrive contracts or Basis contracts can help improve your cash farm price.

Table 1: Current grain bids, Worthington, MN, April 28, 2021

Soybeans

 

 

 

 

 

Corn

 

 

 

 

 

Delivery

Cash Price

Futures Changes

Basis

Futures Month

 

Delivery

Cash Price

Futures Change

Basis

Futures Month

 

Apr-21

15.4375

7'2

0.1700

S1N

 

Apr-21

6.6425

-1'2

0.1100

C1N

Jul-21

15.3875

7'2

0.1200

S1N

 

Jul-21

6.6425

-1'2

0.1100

C1N

Oct-21

12.7275

-1'6

-0.6800

S1X

 

Oct-21

5.1875

-7'4

-0.3600

C1Z

Nov-21

12.7275

-1'6

-0.6800

S1X

 

Nov-21

5.1875

-7'4

-0.3600

C1Z

Oct-22

11.3550

2'4

-0.8300

S2X

 

Oct-22

4.4525

-3'4

-0.4500

C2Z

These are great prices compared to historic levels, yet it is hard for farmers to sell next year’s crop at significantly lower prices. Currently, 2021 prices are lower than cash prices by $1.45½ for corn and $4.08¼ for soybeans. For the last seven years, the average corn price in Worthington MN, has been $3.43 and soybeans at $9.31.The high price during those same years averaged $4.05 and $10.94. Current Worthington cash prices for 2021 corn are at $5.1875 and 2022 corn at $4.4525. Soybeans at $12.7275 for 2021 and $11.3550 for 2022. 

Farmers should examine their cost of production estimates for 2021 and 2022 and determine if current prices offer will cover those costs. If these prices are higher than your cost of production, there is no reason not to consider selling some of your grain at these profitable levels. Other tools can be used to give farmers more comfort with pre-harvest grain pricing, including carrying higher levels of revenue insurance coverage and re-owning the sold bushels with call options. Looking at the last seven years average high prices, current 2021 and 2022 corn and soybean prices are well above both.


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