How to Market Corn When You Hate the Harvest Price
Category: Grains
(Farm Futures) – Every farmer I know wishes he/she had marketed more corn ahead of 2016 harvest. I’m in that same boat.
In my area, little grain was forward marketed because in late June it looked eerily similar to the 2012 drought. The rains then started and our crops came back to life. Our yields are about 15% less than 2014 record yields.
The elevators in my area are not accepting any more bushels for storage. Farmers and elevators are out of bin space, and farmers do not want to accept the near $3 harvest cash bid.
Merchandisers are pushing DP (deferred pricing) contracts. You pay the elevator around 30 cents to do a DP contract in addition to a monthly charge. Futures and basis are open to appreciate. The risk is that corn price will go lower. Basis contracts also seem to be popular this year now that elevators are full on storage contracts.
What you do with grain really depends on your thoughts on the market. I’m bullish the corn market and think we could see $4 within the next few months.
My three point plan:
- I sold 30% of 2016 corn production in winter and summer 2016. I’m pleased but wish now I would have sold more bushels. Our breakeven corn price ranged from $3.30 to $4.10 based on each farm. My sales net above $4 after deducting transportation.
- We put 40% of production in on-farm storage. These bushels are unpriced. It’s amazing how easy it is to put it in the bin and forget about it!
- I’m selling 30% out of the field at the harvest cash price and bought $3.50 at-the-money March corn calls on all of those bushels. I bought the calls last week for 19 cents per bushel. I’ll get the 19 cents back when corn passes $3.69. I don’t have to worry about storage costs and also receive a check for sold grain. Buying calls is a much better and cheaper way for me to retain ownership of grain. The cost of holding a call until March is half of storage or DP rates.
Remember that my strategy is based on my bullish outlook. Now that my plan is written on paper, I’m starting to get nervous that I don’t have downside protection on my on-farm storage. What’s your strategy?
