Pricing the 2012 CORN CROP........
By Ed Usset, University of Minnesota Extension
Is it time to start thinking about pricing the 2012 corn crop
Over the past two months, December 2012 corn futures have been trading in a range of $5.70-$6.00 per bushel. While this price is lower than contracts for delivery in 2011, $6 corn points to a margin of $1 or more per bushel for most Minnesota farmers.
Margins this large are hard to ignore.
Below is a draft of my 2012 pre-harvest marketing plan for corn, which I am sharing as a teaching example. I take action on my plans when they are officially published online, so please read our Grain Marketing Plans around the end of June to see the final version.
My approach in pricing grain is a mix of price objectives and decision dates, and I am purposely vague about how I intend to price grain (“pricing tools to-be-determined”). My selection of a pricing tool is a tactical choice made when I decide to take action.
I also limit early sales (sales more than 9 months before harvest) to about one-third of my expected crop. This is a great opportunity, but I don’t want to get carried away—we live in a volatile world where we can expect the unexpected, and the unexpected may have a sharp affect on grain prices.
Corn 2012 Pre-Harvest Marketing Plan (Example)
Expected 2012 production: 90,000 bushels (600 acres at 150 bushels per acre)
Objective: Buy crop insurance to protect my production risk, and have 75 percent of my anticipated corn crop, based on Actual Production History (APH) priced by early June.
Tactics:
Some additional notes to my plan include:
Are you treating the current market as a pricing opportunity? I see similar opportunities in wheat and soybeans. Do you have a pre-harvest plan to price grain?
Is it time to start thinking about pricing the 2012 corn crop
Over the past two months, December 2012 corn futures have been trading in a range of $5.70-$6.00 per bushel. While this price is lower than contracts for delivery in 2011, $6 corn points to a margin of $1 or more per bushel for most Minnesota farmers.
Margins this large are hard to ignore.
Below is a draft of my 2012 pre-harvest marketing plan for corn, which I am sharing as a teaching example. I take action on my plans when they are officially published online, so please read our Grain Marketing Plans around the end of June to see the final version.
My approach in pricing grain is a mix of price objectives and decision dates, and I am purposely vague about how I intend to price grain (“pricing tools to-be-determined”). My selection of a pricing tool is a tactical choice made when I decide to take action.
I also limit early sales (sales more than 9 months before harvest) to about one-third of my expected crop. This is a great opportunity, but I don’t want to get carried away—we live in a volatile world where we can expect the unexpected, and the unexpected may have a sharp affect on grain prices.
Corn 2012 Pre-Harvest Marketing Plan (Example)
Expected 2012 production: 90,000 bushels (600 acres at 150 bushels per acre)
Objective: Buy crop insurance to protect my production risk, and have 75 percent of my anticipated corn crop, based on Actual Production History (APH) priced by early June.
Tactics:
- Price 10,000 bushels at $4.25 cash price ($4.65 December futures) using forward contract/futures-hedge/futures-fixed contract. (c=cash; f=futures)
- Price 10,000 bushels at $4.50c/$4.90f, or by March 8, pricing tool to-be-determined (tbd).
- Price 10,000 bushels at $4.75c/$5.15f, or by April 6, pricing tool tbd.
- Price 5,000 bushels at $5.00c/$5.40f, or by April 20, pricing tool tbd.
- Price 10,000 bushels at $5.25c/$5.65f, or by May 4, pricing tool tbd.
- Price 10,000 bushels at $5.50c/$5.90f, or by May 18, pricing tool tbd.
- Price the last 10,000 bushels at $5.75c/$6.15f, or by June 4, pricing tool tbd.
Some additional notes to my plan include:
- The plan starts on January 1, 2012. Earlier sales will be made at a 25-cent premium to price targets noted above and will be limited to 30,000 bushels.
- Ignore decision dates and make no sale if prices are lower than $4.25 local cash price/$4.65 December futures.
- Exit all options positions by mid-September, 2012.
Are you treating the current market as a pricing opportunity? I see similar opportunities in wheat and soybeans. Do you have a pre-harvest plan to price grain?