Celebrity Squares
Search for a PreHarvest Advantage
Edward C. Usset, Grain Marketing Specialist
Center for Farm Financial Management
University of Minnesota
email: usset001@umn.edu
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Center for Farm Financial Management
A comprehensive whole
farm financial planning
and analysis system
A tool to help develop,
monitor and implement
marketing plans for
crops and milk
1-800-234-1111
www.cffm.umn.edu
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
WtG 1: The Pre-Harvest Marketing Advantage
WtG 2: Launch Your Pre-Harvest Marketing Plan
Pre-harvest marketing is a broad
view of the market, trying to take
advantage of early seasonal price
tendencies. Crop insurance is a
critical part of marketing.
Winner of the 2004 AAEA
Distinguished Extension Group Award!
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
WtG 3: The Post Harvest Marketing Challenge
Post harvest marketing is a
practical approach to the
current environment, adapting
to market signals and
incentives. Tactics may change
from one year to the next.
Call CFFM at 800-234-1111 for more information about how
to sponsor a “Winning the Game” workshop in your town.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Agenda
• Meet our celebrity producers
• Discuss their pre-harvest marketing styles
• Can our celebrities find a pre-harvest
advantage?
• Can we improve their plans?
• 2006 pre-harvest plans
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Why is Marketing Important?
• The average farm earns 20-30 cents per
bushel (including gov’t payments). Just
10 cents more per bushel could
increase net income by 33-50%!
• Great marketing is not finding the high
price. It’s finding an extra 10-20 cents
per bushel with a solid plan that avoids
mistakes.
Can our celebrities find a dime?
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
What is the Pre-Harvest Advantage?
Early sales could be our best
sales. Can we find a dime in
pre-harvest marketing?
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Let’s meet our
celebrities…
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Barney Binless
Barney has no storage and no
interest in pre-harvest marketing.
He is our benchmark - his price is
the harvest price each year.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Grandma
Grandma likes to keep her marketing plan
simple. She prices 10% of her new crop
corn, soybeans and wheat each month
from January thru July – 70% of her total
expected crop.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Justin Price
Justin only pays attention to prices. He
is willing to price 25% increments at…
$2.50, $2.75 & $3.00 Dec. Corn
$5.50, $6.25 & $7.00 Nov. Soybeans
$3.50, $3.85 & $4.20 Sept. Wheat
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Southern MN Cost of Production
FINBIN Average, Cash Rent, 2000-2003
Corn
Yield (bu./acre)
152.0
Direct & overhead
$2.17
With labor & mgmt
$2.35
Less gov’t pay & other
$2.10
“The break even
price to cover all
costs and a
return to labor &
management”
$2.50 December futures, or $2.10 cash price (the
harvest basis averages 40 cents under), is consistent
with a break-even cost of production.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Pricing Targets
Frequency that Chicago December Corn Futures Exceeded
Given Price Level, 1980-2005
100%
Life-of-Contract High Closing Price
80%
At Contract Expiration
60%
40%
20%
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
>
4.
00
>
3.
75
>
3.
50
>
3.
25
>
3.
00
>
2.
75
>
2.
50
0%
Pricing Targets
Frequency that Chicago December Corn Futures Exceeded
Given Price Level, 1980-2005
100%
Life-of-Contract High Closing Price
80%
At Contract Expiration
60%
40%
20%
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
>
4.
00
>
3.
75
>
3.
50
>
3.
25
>
3.
00
>
2.
75
>
2.
50
0%
Southern MN Cost of Production
FINBIN Average, Cash Rent, 2000-2003
Soybeans
Yield (bu./acre)
42.9
Direct & overhead
$5.47
With labor & mgmt
$5.99
Less gov’t pay & other
$5.06
“The break even
price to cover all
costs and a
return to labor &
management”
$5.50 November futures, or $5.00 cash price (the
harvest basis averages 50 cents under), is consistent
with a break-even cost of production.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Pricing Targets
Frequency that Chicago November Soybean Futures
Exceeded Given Price Level, 1980-2005
100%
Life-of-Contract High Closing Price
80%
At Contract Expiration
60%
40%
20%
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
>
8.
50
>
8.
00
>
7.
50
>
7.
00
>
6.
50
>
6.
00
>
5.
50
0%
Pricing Targets
Frequency that Chicago November Soybean Futures
Exceeded Given Price Level, 1980-2005
100%
Life-of-Contract High Closing Price
80%
At Contract Expiration
60%
40%
20%
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
>
8.
50
>
8.
00
>
7.
50
>
7.
00
>
6.
50
>
6.
00
>
5.
50
0%
Terry Timer
Terry pays attention to the seasonal highs
in new crop futures prices by pricing 25%
increments in March, April and May. But
she won’t sell if Dec. corn <$2.50, Nov.
soybeans <$5.50, or Sept. wheat <$3.50.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Contract
1-May
1-Oct
Change
1980
2.95
3.49
0.54
1981
3.77
2.87
(0.90)
1982
2.93
2.20
(0.73)
1983
3.03
3.53
0.50
1984
3.04
2.78
(0.26)
1985
2.64
2.26
(0.39)
1986
2.04
1.77
(0.27)
1987
1.87
1.84
(0.03)
1988
2.27
2.95
0.68
1989
2.64
2.39
(0.26)
1990
2.70
2.29
(0.42)
1991
2.53
2.54
0.01
1992
2.53
2.12
(0.41)
1993
2.43
2.43
0.00
1994
2.58
2.14
(0.44)
1995
2.63
3.11
0.48
1996
3.33
2.90
(0.44)
1997
2.76
2.56
(0.20)
1998
2.62
2.05
(0.58)
1999
2.31
2.05
(0.26)
2000
2.62
1.99
(0.63)
2001
2.27
2.11
(0.16)
2002
2.20
2.56
0.36
2003
2.33
2.20
(0.13)
2004
3.17
2.06
(1.11)
2005
2.27
2.06
(0.21)
Average
2.63
2.43
(0.20)
CBOT December Corn
Futures, 1980-2005
19 years (73%) the market
declined
7 years (27%) the market
improved
14 years the market declined
more than 25 cents!
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Pre-Harvest Seasonal Price Trends
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
1-Dec
1-Oct
approximate dates
1-Nov
1-Jul
1-Mar
240
235
1-Sep
245
1-Aug
250
1-Jun
255
1-Feb
260
1-Jan
cents per bushel
265
1-May
270
1-Apr
Chicago December Corn Futures, 1980-2005 average
Contract
1-May
1-Oct
Change
1980
6.45
8.12
1.67
1981
8.27
6.46
(1.81)
1982
6.78
5.29
(1.50)
CBOT November Soybean
Futures, 1980-2005
1983
6.78
8.58
1.80
1984
7.13
5.90
(1.24)
1985
6.06
5.14
(0.93)
1986
5.24
4.88
(0.36)
1987
5.34
5.45
0.11
17 years (65%) the market
declined
1988
7.14
8.17
1.04
1989
7.24
5.77
(1.47)
1990
6.55
6.05
(0.51)
1991
6.09
5.89
(0.20)
9 years (35%) the market
improved
1992
6.05
5.33
(0.72)
1993
5.96
6.18
0.22
1994
6.28
5.38
(0.90)
1995
6.06
6.37
0.32
12 years the market
declined more than 50 cents!
1996
7.58
7.49
(0.08)
1997
6.96
6.21
(0.76)
1998
6.17
5.15
(1.02)
1999
5.14
4.81
(0.33)
2000
5.80
4.90
(0.90)
2001
4.34
4.52
0.18
2002
4.56
5.42
0.86
2003
5.53
6.87
1.34
2004
7.45
5.35
(2.10)
2005
6.22
5.73
(0.49)
Average
6.27
5.98
(0.30)
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Pre-Harvest Seasonal Price Trends
635
Chicago November Soybean Futures, 1980-2005 average
1-Jun
1-Apr
1-Jul
1-Sep
605
1-Aug
610
1-Feb
615
1-Mar
620
1-Jan
cents per bushel
625
1-May
630
595
590
approximate dates
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
1-Nov
1-Oct
600
Contract
1-May
1-Aug
Change
1980
4.13
4.68
0.55
1981
4.65
4.21
(0.44)
1982
4.05
3.88
(0.17)
1983
4.00
4.08
0.09
MGEX September Spring
Wheat, 1980-2005
1984
3.90
3.96
0.06
1985
3.63
3.19
(0.44)
1986
2.92
2.68
(0.25)
1987
2.87
2.60
(0.27)
1988
3.13
4.12
0.99
16 years (62%) the market
declined
1989
4.19
3.93
(0.26)
1990
3.61
2.81
(0.80)
1991
2.95
2.88
(0.07)
1992
3.55
3.06
(0.49)
10 years (38%) the market
improved
1993
2.99
3.15
0.15
1994
3.34
3.34
(0.00)
1995
3.65
4.73
1.08
1996
5.93
4.70
(1.23)
13 years the market declined
more than 25 cents!
1997
4.39
3.92
(0.48)
1998
3.61
3.08
(0.53)
1999
3.33
3.44
0.11
2000
3.35
2.97
(0.38)
2001
3.47
3.16
(0.31)
2002
3.01
3.80
0.80
2003
3.39
3.70
0.32
2004
4.24
3.53
(0.71)
2005
3.46
3.50
0.04
Average
3.68
3.58
(0.10)
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Pre-Harvest Seasonal Price Trends
375
September Spring Wheat Futures, 1980-2004 average
355
350
approximate dates
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
1-Sep
1-Aug
1-Jul
1-Jun
1-May
1-Apr
1-Mar
360
1-Feb
365
1-Jan
cents per bushel
370
Peter Paperfarmer
Peter likes Terry’s approach to pricing but he
“re-owns” each sale with the purchase of a
call. He gets Terry’s price, plus any profit or
loss from buying an at-the-money December
corn call option and holding to September 15
(November soybean calls, Sept wheat calls).
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Meet Our Celebrities…
Peter Paperfarmer
minimum price = grain selling price – premium paid for calls - fees
Date
April
Cash
Futures/Options
Elevator bidding Dec futures @ $2.75
40 under for
280 calls cost 17
new crop corn
cents
Action
Forward contract for $2.35
and buy December 280
calls for 17 cents
Worst case scenario? (i.e. minimum price)
$2.35 cash price - 0.17 option cost – 0.01 fee = $2.17
Best case scenario? Poised for profits should December
futures go higher than $2.97 ($2.80 + 0.17 + 0.01)
No limit to your upside potential!
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Squares Search for a PreHarvest Advantage – Corn/Soybeans
About the search: The search for a pre-harvest
advantage took place in SW Minnesota (43 under average
corn basis, 51 under for soybeans) using actual prices for
a 25-year period, 1980-2004. All pre-harvest sales used
December or November futures less the actual harvest
basis. LDP’s were not considered.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Squares Search for a PreHarvest Advantage – Corn/Soybeans
Barney Binless gets the Tuesday price between
October 12-18.
Grandma sells December or November futures each
Tuesday between the 4th and 10th of the month,
January-July, less the actual harvest basis.
Justin Price sells when December new crop futures
reaches $2.50, $2.75, and $3.00 per bushel (or $5.50,
$6.25, and $7.00 November soybeans), anytime
starting November 1 of a year earlier.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Squares Search for a PreHarvest Advantage – Corn/Soybeans
Terry Timer sells December or November futures each
Tuesday between the 4th and 10th of March, April and
May, less the actual harvest basis. She will not sell
December corn futures less than $2.50 or November
soybean futures less than $5.50, or after June 1.
Peter Paperfarmer shadows Terry but “re-owns” each
sale with an at-the-money December corn call or
November soybean call, sold on September 15. Option
premiums before 1990 were estimated.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Results Corn, 1980-2004
crop year
1980
1981
1982
1983
1984
1985
1986
1987
Remember – 25%
1988
of Justin, Terry
1989
1990
and Peter’s price
1991
is the harvest
1992
price, as is 30% of 1993
1994
Grandma’s price.
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Barney
$2.74
$2.25
$1.83
$2.93
$2.54
$2.10
$1.20
$1.35
$2.45
$1.97
$1.88
$2.02
$1.79
$2.13
$1.76
$2.71
$2.59
$2.38
$1.76
$1.42
$1.63
$1.60
$2.33
$1.90
$1.73
Grandma
$2.34
$2.75
$2.28
$2.50
$2.64
$2.38
$1.47
$1.26
$2.12
$2.14
$2.11
$2.05
$2.15
$2.12
$2.04
$2.30
$2.87
$2.23
$2.05
$1.65
$1.87
$1.81
$2.17
$2.04
$2.35
Justin
$2.29
$2.66
$2.71
$2.40
$2.62
$2.42
$1.20
$1.35
$2.38
$2.12
$2.07
$2.03
$1.90
$2.17
$2.00
$2.35
$2.59
$2.33
$2.09
$1.55
$1.74
$1.72
$2.39
$1.98
$2.29
Terry
$2.29
$2.83
$2.34
$2.56
$2.66
$2.43
$1.20
$1.35
$2.45
$2.16
$2.14
$2.12
$2.17
$2.13
$2.09
$2.25
$2.91
$2.35
$2.11
$1.42
$1.98
$1.71
$2.33
$1.98
$2.58
Peter
$2.44
$2.62
$2.17
$2.74
$2.53
$2.31
$1.20
$1.35
$2.45
$2.04
$2.04
$2.04
$2.04
$2.13
$1.98
$2.39
$2.74
$2.22
$1.95
$1.42
$1.82
$1.65
$2.33
$1.94
$2.35
1980-2004 avg.
Worst price?
Better than Barney
$2.04
16
NA
$2.15
3
17
$2.13
4
18
$2.18
4
15
$2.12
4
14
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Results Corn, 1980-2004
Let’s compare to Barney Binless!
Barney
Average
2.04
Worst
Price *
Better
than
Barney *
16
NA
* Out of 25 years
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Results Corn, 1980-2004
Barney vs. Grandma
Barney Grandma
Average
2.04
2.15
Worst
Price *
Better
than
Barney *
16
3
NA
17
• Grandma found
the dime!
• High odds of a
better year
• Slow but steady
adds value!
* Out of 25 years
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Results Corn, 1980-2004
Barney vs. Justin
Barney Grandma
Justin
Average
2.04
2.15
2.13
Worst
Price *
Better
than
Barney *
16
3
4
NA
17
18
• Justin found
the dime!
• High odds of
a better year
• Price targets
work!
* Out of 25 years
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Results Corn, 1980-2004
Barney vs. Terry
• Terry found
14 cents!
• Good odds
Barney Grandma
Justin
of a better
year
Average 2.04
2.15
2.13
• Timed selling
Worst
16
3
4
Price *
works too!
Better
than
Barney *
NA
17
18
Terry
2.18
4
15
* Out of 25 years
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Results Corn, 1980-2004
Barney vs. Peter
• Even Peter
found 8 cents!
• Ok odds of a
Barney Grandma
Justin
better
year Terry
Average 2.04
2.15
2.13cost2.18
• Options
Worst
16
3 him 64cents 4
Price *
Better
than
Barney *
NA
17
18
15
Peter
2.12
4
14
* Out of 25 years
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Results Corn, 1980-2004
Barney Grandma
Justin
Terry
Peter
Average
2.04
2.15
2.13
2.18
2.12
Worst
Price *
Better
than
Barney *
16
3
4
4
4
NA
17
18
15
14
* Out of 25 years
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Results Soybeans, 1980-2004
crop year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Barney
$7.57
$5.87
$4.98
$8.02
$5.92
$4.72
$4.25
$4.74
$7.48
$5.18
$5.64
$5.05
$5.01
$5.73
$4.96
$5.90
$6.60
$6.57
$5.07
$4.39
$4.23
$3.87
$5.09
$7.01
$4.73
Grandma
$6.42
$6.80
$5.81
$6.38
$6.49
$5.32
$4.54
$4.55
$7.02
$6.24
$5.71
$5.38
$5.48
$5.68
$5.53
$5.51
$6.93
$6.35
$5.55
$4.41
$4.65
$4.12
$4.53
$5.60
$6.07
Justin
$6.64
$7.06
$6.54
$6.32
$6.33
$5.51
$4.44
$4.77
$6.16
$6.47
$5.62
$5.42
$5.35
$5.66
$5.36
$5.69
$6.52
$6.32
$6.15
$4.64
$4.44
$3.87
$5.11
$6.18
$5.74
Terry
$6.18
$6.98
$5.92
$6.40
$6.65
$5.42
$4.25
$4.85
$6.62
$6.44
$5.78
$5.56
$5.53
$5.59
$5.56
$5.50
$7.10
$6.56
$5.58
$4.39
$4.94
$3.87
$5.09
$5.65
$6.63
Peter
$6.95
$6.58
$5.65
$7.56
$6.33
$5.20
$4.25
$4.71
$7.69
$6.13
$5.66
$5.43
$5.28
$5.58
$5.35
$5.43
$7.03
$6.25
$5.32
$4.39
$4.61
$3.87
$5.09
$5.79
$6.11
1980-2004 average
Worst Price?
Better than Barney
$5.54
14
NA
$5.64
3
16
$5.69
5
15
$5.72
4
14
$5.69
6
14
Remember – 25%
of Justin, Terry
and Peter’s price
is the harvest
price, as is 30% of
Grandma’s price.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Results Soybeans, 1980-2004
Let’s compare to Barney Binless!
Barney
Average
5.54
Worst
Price *
Better
than
Barney *
14
NA
* Out of 25 years
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Results Soybeans, 1980-2004
Barney vs. Grandma
Barney Grandma
Average
5.54
5.64
Worst
Price *
Better
than
Barney *
14
3
NA
16
• Grandma found
the dime!
• High odds of a
better year
• Slow but steady
adds value!
* Out of 25 years
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Results Soybeans, 1980-2004
Barney vs. Justin
Barney Grandma
Justin
Average
5.54
5.64
5.69
Worst
Price *
Better
than
Barney *
14
3
5
NA
16
15
• Justin found
15 cents!
• High odds of
a better year
• Price targets
work!
* Out of 25 years
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Results Soybeans, 1980-2004
Barney vs. Terry
• Terry found
18 cents!
• Good odds
Barney Grandma
Justin
of a better
year
Average 5.54
5.64
5.69
• Timed selling
Worst
14
3
5
Price *
works too!
Better
than
Barney *
NA
16
15
Terry
5.72
4
14
* Out of 25 years
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Results Soybeans, 1980-2004
Barney vs. Peter
• Even Peter
found 15 cents!
• Good odds of a
Barney Grandma
betterJustin
year Terry
Average 5.54
5.64
5.69
• Options
cost 5.72
Worst
14
3 him 3 cents
5
4
Price *
Better
than
Barney *
NA
16
15
14
Peter
5.69
6
14
* Out of 25 years
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Celebrity Results Soybeans, 1980-2004
Barney Grandma
Justin
Terry
Peter
Average
5.54
5.64
5.69
5.72
5.69
Worst
Price *
Better
than
Barney *
14
3
5
4
6
NA
16
15
14
14
* Out of 25 years
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
What can we conclude from our
celebrity search for a pre-harvest
advantage?
Everybody with a plan found the dime, and
everybody with a plan beat the harvest
price, so…
Have a plan!
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Can we improve their preharvest marketing plans?
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Grandma has a plan. How
could we improve it?
Simple is nice, but does it make sense to
price grain at less than my loan rate?
Grandma needs a minimum price
objective.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Justin has a plan. How
could we improve it?
Getting your price is great, but what
about those years when the market
offers good, but not great, prices? Justin
needs to mix in some decision dates.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Terry has a plan. How
could we improve it?
Seasonal price trends are interesting, but
does it make sense to forego earlier or
later sales at any price? Terry needs to
mix in some price objectives too.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Peter has a plan. How
could we improve it?
Comparing Peter’s results to Terry shows that,
in the long run, options cost money. Peter
profited from options in 3 of 19 years in corn,
4 of 21 years in soybeans, and , 2 of 12 years
in wheat. But options can be used to get us
to 100% sold!
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Corn
2006 Pre-Harvest Marketing Plan
Objective: Buy crop insurance to protect my production risk, and have 75% of my
anticipated corn crop (based on APH yield) priced by late May.
Price 10,000 bushels at $2.10 cash price ($2.50 Dec. futures) using forward
contract/futures hedge/futures fixed contract. HTA 1-3-06 @ $2.51½ Dec’06
Price 10,000 bushels at $2.22c/2.62f, or by March 29, pricing tool tbd.
Price 10,000 bushels at $2.34c/2.74f, or by April 7, pricing tool tbd.
Price 15,000 bushels at $2.46c/2.86f, or by April 27, pricing tool tbd.
Price 10,000 bushels at $2.58c/2.98f, or by May 13, pricing tool tbd.
Price 10,000 bushels at $2.70c/3.10f, or by May 27, pricing tool tbd.
Plan starts on November 1, 2005. Earlier sales will be made at a 15 cent premium to
price targets noted above.
Ignore decision dates and make no sale if prices are lower than $2.10 local cash
price/$2.50 December futures. I will “revisit” my minimum price in February, 2006.
Exit all options positions by mid-September.
http://www.cffm.umn.edu/Marketing/MarketingPlans.asp
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Soybeans
2006 Pre-Harvest Marketing Plan
Objective: Buy crop insurance to protect my production risk, and have 75% of my
anticipated corn crop (based on APH yield) priced by late May.
Price
price
Price
Price
Price
Price
Price
Price
2,500 bushels at $5.15 cash price ($5.65 Nov. futures) using some form of fixed
contract: forward contract, HTA, sell futures. HTA 4-15 @ $5.92½ Nov’06
2,500 bushels at $5.35c/5.85f, or by Mar 15, HTA 6-21 @ $6.45 Nov’06
2,500 bushels at $5.55c/6.05f, or by Mar 29, HTA 6-21 @ $6.45 Nov’06
2,500 bushels at $5.75c/6.25f, or by Apr 7, HTA 12-20 @ $6.38¼ Nov’06
2,500 bushels at $5.95c/6.45f, or by Apr 27, HTA 1-3 @ $6.45¼ Nov’06
2,500 bushels at $6.15c/6.65f, or by May 13, pricing tool tbd.
2,500 bushels at $6.35c/6.85f, or by May 27, pricing tool tbd.
Plan starts on October 1, 2005. Earlier sales will be made at a 15 cent premium to
price targets noted above.
Ignore decision dates and make no sale if prices are lower than $5.15 local cash
price/$5.65 November futures.
Exit all options positions by mid-September.
50% of my 2006 crop has been priced at $6.33 November futures.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Three reasons to like pre-harvest sales
1. Strong seasonal tendency
2. LDP’s give me upside potential
in a down market
3. The sale is made at a price that
works for me!
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
I have a pre-harvest
marketing plan.
Do you have a plan?
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Corn
My 2006 Pre-Harvest Marketing Plan
Objective: Buy crop insurance to protect my production risk, and have ___% of my
insured (APH) corn crop priced by __________.
Price ______ bushels at $______ cash price ($_______ Dec. futures) using ___________.
Price ______ bushels at $______, or by _______, using __________________________.
Price ______ bushels at $______, or by _______, using __________________________.
Price ______ bushels at $______, or by _______, using __________________________.
Price ______ bushels at $______, or by _______, using __________________________.
Price ______ bushels at $______, or by _______, using __________________________.
Plan starts on __________________. Earlier sales will be made at a _________ cent
premium to price targets noted above.
Ignore decision dates and make no sale if prices are lower than $_________ local cash
price/$_________ December futures.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Soybeans
My 2006 Pre-Harvest Marketing Plan
Objective: Buy crop insurance to protect my production risk, and have ___% of my
insured (APH) soybean crop priced by _________.
Price ______ bushels at $______ cash price ($_______ Nov. futures) using ___________.
Price ______ bushels at $______, or by _______, using __________________________.
Price ______ bushels at $______, or by _______, using __________________________.
Price ______ bushels at $______, or by _______, using __________________________.
Price ______ bushels at $______, or by _______, using __________________________.
Price ______ bushels at $______, or by _______, using __________________________.
Plan starts on __________________. Earlier sales will be made at a _________ cent
premium to price targets noted above.
Ignore decision dates and make no sale if prices are lower than $_________ local cash
price/$_________ November futures.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Who is our unknown celebrity?
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Hank Holder!
While our other celebrities are searching for an
advantage in pre-harvest pricing, Hank is still
holding onto last year’s crop. But the seasonal
trends that favor pre-harvest sales are working
against the value of old crop grain in the bin. In
addition, the old crop basis has begun it’s decline
from late spring highs to harvest lows.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
The 11th Commandment of grain marketing: “Thou shall not
hold unpriced corn or soybeans in the bin beyond July 1”
Worthington, MN Average Cash Corn Prices, 1980-2003 Crop Years
$2.40
$2.35
M
$ per bushel
$2.30
A
J
J
$2.25
$2.20
M
F
$2.15
J
$2.10
$2.05
D
O
N
$2.00
approximate dates (October 1 - September 30)
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
A
S
Contract
Worthington, MN
Cash Corn, 1980-2004
17 years (68%) the market
declined
Of the 8 years (32%)
where the market
improved, only 5 years did
the price rise more than 15
cents!
July 1-7
Oct 12-18
Change
1980
$2.38
$2.74
$0.36
1981
$2.90
$2.25
($0.65)
1982
$2.30
$1.83
($0.47)
1983
$2.90
$2.93
$0.03
1984
$3.13
$2.54
($0.59)
1985
$2.40
$2.10
($0.30)
1986
$1.85
$1.20
($0.65)
1987
$1.47
$1.35
($0.12)
1988
$2.86
$2.45
($0.41)
1989
$2.42
$1.97
($0.45)
1990
$2.55
$1.88
($0.67)
1991
$2.03
$2.02
($0.01)
1992
$2.18
$1.79
($0.39)
1993
$2.08
$2.13
$0.05
1994
$2.04
$1.76
($0.28)
1995
$2.51
$2.71
$0.20
1996
$4.80
$2.59
($2.21)
1997
$2.06
$2.38
$0.32
1998
$2.00
$1.76
($0.24)
1999
$1.50
$1.42
($0.08)
2000
$1.48
$1.63
$0.15
2001
$1.59
$1.60
$0.01
2002
$2.01
$2.33
$0.32
2003
$2.05
$1.90
($0.15)
2004
$2.43
$1.73
($0.70)
Average
$2.31
$2.04
($0.28)
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Contract
Worthington, MN
Cash Corn, 1980-2004
17 years (68%) the market
declined
Of the 8 years (32%)
where the market
improved, only 5 years did
the price rise more than 15
cents!
July 1-7
Oct 12-18
Change
1980
$2.38
$2.74
$0.36
1981
$2.90
$2.25
($0.65)
1982
$2.30
$1.83
($0.47)
1983
$2.90
$2.93
$0.03
1984
$3.13
$2.54
($0.59)
1985
$2.40
$2.10
($0.30)
1986
$1.85
$1.20
($0.65)
1987
$1.47
$1.35
($0.12)
1988
$2.86
$2.45
($0.41)
1989
$2.42
$1.97
($0.45)
1990
$2.55
$1.88
($0.67)
1991
$2.03
$2.02
($0.01)
1992
$2.18
$1.79
($0.39)
1993
$2.08
$2.13
$0.05
1994
$2.04
$1.76
($0.28)
1995
$2.51
$2.71
$0.20
1996
$4.80
$2.59
($2.21)
1997
$2.06
$2.38
$0.32
1998
$2.00
$1.76
($0.24)
1999
$1.50
$1.42
($0.08)
2000
$1.48
$1.63
$0.15
2001
$1.59
$1.60
$0.01
2002
$2.01
$2.33
$0.32
2003
$2.05
$1.90
($0.15)
2004
$2.43
$1.73
($0.70)
Average
$2.31
$2.04
($0.28)
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
1980-2004 average, from the 1st week of July to the
2nd week of October…
cash price = futures price + basis
- 28 cents
- 12 cents
Two separate and potent
price trends are stacking the
deck against Hank. Despite
some exceptions, his odds for
success are small.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
- 16 cents
1980-2004 average, from the 1st week of July to the
2nd week of October…
cash price = futures price + basis
- 47 cents
- 9 cents
Soybeans are even a greater
challenge!
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
- 38 cents
The conclusion for Hank is clear…
Worthington, MN Average Cash Corn Prices, 1980-2003 Crop Years
$2.40
$2.35
M
$ per bushel
$2.30
A
J
J
$2.25
$2.20
M
F
$2.15
J
$2.10
$2.05
D
O
A
Hank is riding the wrong bus!
N
$2.00
approximate dates (October 1 - September 30)
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
S
Would you like to get email updates about
my marketing plans and actions?
Send me an email at…
usset001@umn.edu
and say… “Put me on your list!”
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.
Final Thoughts
• There is no one “right” answer in preharvest marketing and some degree of
risk is unavoidable
• Being just Grandma, or just Terry, or just
Justin may not be the right approach
• Diversifying your choices will decrease risk
• Everybody with a plan beat Barney. Do
you have a pre-harvest marketing plan?
Copyright © 2005 Center for Farm Financial Management, University of Minnesota. All Rights Reserved.