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Get ready to price 2012 corn

Ag News Wire
By Ed Usset, University of Minnesota Extension

ST. PAUL, Minn. (6/20/2011) —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 visit www.extension.umn.edu/go/1067 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?

In addition to my University of Minnesota Extension website for grain marketing plans (www.extension.umn.edu/go/1067), you may also want to visit my grain marketing blog at http://edsworld.wordpress.com.



Any use of this article must include the byline or following credit line:

Ed Usset is a grain marketing specialist with University of Minnesota Extension.

Media Contact: Catherine Dehdashti, U of M Extension, (612) 625-0237, ced@umn.edu

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