Iowa Farmer Today
09-08-07
Fall marketing strategies change with corn demand
By Tim Hoskins, Iowa Farmer Today
LYNNVILLE -- This year’s fall grain marketing continues to look different than in
recent years.
Experts are telling farmers to sell enough grain to cover cash flow needs and
store the rest at harvest.
That is partly the strategy Jasper County farmer Roger Zylstra took for his 2007
crop.
“I have enough sold to cover my cash flow needs,” he says.
Otherwise, he plans to store a large portion of the crop, a strategy of many
farmers.
That advice comes from Bob Wisner, Iowa State University economist; Melvin
Brees, University of Missouri grain marketing specialist; and Chris Hurt, Purdue
University agricultural economist.
Hurt says, “Basis levels will be severe.”
The added bushels competing for space at the elevators and processing plants
mean the basis will drop drastically.
To meet cash flow needs, there are options.
First, Hurt says farmers should fill their forward contracts and use the money to
cover cash flow needs.
Wisner says one idea could be to make cash sales early in the harvest window.
His reasoning is: As harvest progresses, the more basis levels and prices will
likely decline.
Hurt suggests farmers try to use temporary storage to move marketing 30-60
days out of harvest, when basis might likely improve 15-20 cents per bushel for
corn.
He says basis levels will likely rebound in late November and early December.
However, when the market reaches mid December, it starts to go into a holiday
trading pattern, Hurt says.
For tax purposes, he says farmers might want to consider delaying some sales
into 2008.
However, Hurt says as yield reports come in, yields might be higher than
expected. Therefore, he says farmers might want to consider looking at some
forward contracts.
In those contracts, farmers may want to lock in the futures prices but hold off on
the basis, he advises.
Loans could be another source of money to meet cash flow needs.
Usually, many farmers use the LDP to meet cash flow needs.
This year, an LDP is not likely because of higher prices.
However, Hurt says there is still the marketing loan program from the federal
government that will charge borrowers a little less on interest rates than other
sources.
He says farmer might also want to talk to their lenders about meeting cash flow
needs.
Hurt says with increased land values, some eager bankers are willing to make
loans.
With cash flow needs met, Hurt, Wisner and Brees agree storing at least part of
the crop makes sense because of better future prices and improvements in
basis.
However, limited storage space likely means farmers will try to decide storage of
which crop will provide the best returns.
The three economists agree the answer is not clear cut.
Brees believes the corn price is discounted to soybeans. However, he says
farmers need to guess if corn prices will rise or if soybean prices will fall.
He says corn prices are at the low end of the USDA range and soybeans are in
the higher end.
Wisner and Hurt think there might be more room for bean prices to increase than
corn prices.
Hurt says fall 2008 and heading into 2009, ethanol prices will be $1.60 per gallon
for plants.
He calculates the most ethanol plants will be able to pay for corn is $3 per bushel
to remain profitable or at break-even levels.
However, Wisner points out corn exports for corn are strong.
Also, there is news railroad and barge rates are increasing.
Says Brees, “In the recent weeks, rail and barge rates have skyrocketed.”
On the bean side of the equation, things look less uncertain.
Hurt says there is some speculation in beans.
“Some guys are saying ‘Put them in the bin and wait until ten’,” Hurt says.
He says $10-per-bushel soybeans might be too optimistic.
However, he says because August rain did not get south of Interstate 70,
national soybean yields probably will not be raised more than corn.
He says with futures price and basis improvement, beans at $9/bu. seem
reasonable.
Overall, Hurt says farmers might want to spread out some of their sales and lock
in some of the carry returns until after planting of the 2008 crop.
Looking at future crops, Wisner says some farmers are considering selling the
2008, 2009 and/or the 2010 crops.
While prices are around $4/bu., it might make sense to make some conservative
sales.
However, he cautions, “It is likely costs will increase in a couple years.”
Wisner says land rents likely will go up, interest costs and large margin calls
might make some long-term sales look negative.
Hurt suggests farmers follow a disciplined marketing approach and not try to out
guess the market or bet the farm on one outcome.
That is exactly what Zylstra is doing. With his work with a marketing club and
market adviser, he says he has become a more disciplined marketer.
“I am a scale-up seller,” he says. That means he will likely hit some of the highs
and some of the lows of this unique marketing year.