Growing On 2018 helps farmers market crops in difficult times
YANKTON, S.D. — 2018 was an unprecedented year in the grain markets with record crops and the trade war pressuring prices. As a result, farmers stored a huge amount of grain, especially soybeans, to wait for better prices. Now they’re looking for help on how to market those bushels. That was the focus of the Growing On 2018 meetings conducted across South Dakota by Iowa State University Farm and Ag Business Management Specialist Steven Johnson.
Johnson says the volatility in 2018 is the reason farmers need to manage crop risk, especially related to price.
“You can’t just produce it, you’ve got to be able to sell it for a profit,” he said.
He shared five case studies from Iowa, Nebraska and South Dakota and said these successful farmers all have one thing in common: They are managing crop risk.
With all the market noise, especially regarding the trade war, Johnson advised farmers to tune it out.
“Focus on what you can control,” he said. That includes the decision of what to plant, what type of marketing plan to implement, whether or not to store, plus when to generate cash flow.
Johnson shared a laundry list of marketing considerations that go into developing a marketing plan.
“Things like time objectives, price objectives, old crop marketing futures carry, basis, cost of ownership and separating commercially stored bushels from on-farm stored bushels.” He said farmers overall need to use more marketing tools in that plan to manage crop risk for both old and new crop bushels.
For old crop production, Johnson said he is concerned the unprecedented amount of grain piles and bag storage will pressure basis levels in February and March. He said he believes farmers have very little of that grain priced.
Johnson’s advice is to take advantage of basis when it narrows in April and May with a basis contract. However, it can vary by area so farmers need to track the seasonality for five years. Futures usually rally in late winter and spring as well, so farmers need to use that information to make the most educated marketing decisions.
“We want to take advantage of the seasonality of futures and the seasonality of basis, unhook them,” he added.
For new crop bushels, Johnson said farmers need to quit using spot cash and forward contracts. Instead, they should adapt to hedge to arrive contracts for bushels they’re willing to commit to delivery, using Revenue Protection Crop Insurance.
“If you don’t want to deliver the bushels, use futures hedges or buy put options,” he said.
South Dakota Corn Executive Director Lisa Richardson said Growing On is an annual educational series they have sponsored for many years. The meetings generally attract about 1,500 farmers and they’re well-attended because marketing is so critical to farmers’ overall profitability.
“It’s really to make them think about the marketing, their decisions and for them to develop a plan on their basis … and to try to take some of the emotions out,” she said. That is true more than ever this year with a record corn crop in South Dakota, negative ethanol grinding margins and the spillover impact of the lower soybean prices.
Farm Credit Services also underwrites the program. Regional Vice President Wes Chambers said they hope Growing On will help farmers better evaluate their finances, especially coming off a year where they had big crops, but margins are still tight.
“We are again trying to get them to focus on their breakeven costs. We want them to try to figure out their true cost of production and help them make some better management decisions as we step into 2019,” he said.
Chambers added the Market Facilitation Program payments will be very helpful to soybean farmers and their bottom line, especially if they were able to take advantage of some higher prices and lock those in earlier in the year.