The Futures Market May Be a Good Option for Growers

Growers should consider selling their grain in the futures market, provided they have done their homework and have a deliberate, written plan.

The Futures Market May Be a Good Option for Growers
Just a few weeks can make a big difference in whether growers make a substantial profit or take a loss on grain harvests. Earlier this year, experts saw a dramatic difference on the Chicago Board of Trade in a short period of time.

“Late May was the high for the grain markets this spring,” says Rob Huston, vice president of origination for Gavilon Grain, LLC. “The average price of December corn futures from March 1 until June 30 was $4.04 per bushel, peaking around May 29. By the second week of July, it was about 55 cents per bushel less. That change can be the difference between making a profit or not.”

Trends to Follow

For growers, a volatile market increases the importance of anticipating and capitalizing on the highs. It sounds difficult, but Steve Johnson with Iowa State University Extension says there are trends growers can monitor in the marketplace.

Johnson says production uncertainty for the upcoming growing season causes the peak. Variables, such as weather and disease pressure, could damage the potential planted acreage or crop yields, thus triggering speculative buying of crop futures contracts.

The Big Mistake

Ed Usset, a grain marketing specialist with the University of Minnesota, says a reluctance to preharvest market grain is one of the most common mistakes growers can make.

Experts at @SyngentaUS say the futures market may be a good option for growers.

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“I still meet growers who say they can’t price a new crop they just planted. Of course, they can,” he says. “Growers can know what their production costs are, by tracking what they put into the crop in terms of variable costs, such as fertilizers and seed costs. They can see what grain futures contracts are selling for on the Chicago Board of Trade, and they should know what they are selling for locally. Preharvest marketing pays more often than not. If they see a futures price that’s more than their input costs, and they can forward-contract it for a profit ahead of time, why wouldn’t they?”

Huston agrees, but says it’s hard for growers to pull the trigger on forward contracts, because growers often don’t fully understand their average production history—usually based on a five-year yield average.

“But if they can anticipate an average yield and further break down their costs per acre to a cents-per-bushel basis, then it’s easier for them to visualize a profit when the market hits the next rally,” Huston says.

The Price of Storing Grain

With peak futures prices often occurring in the spring, growers may think the best course of action is to store grain over the winter to capitalize on the next spike. Storing grain allows growers to premarket a portion of their harvest and diversify their risk, by holding on to a portion to price at the next market rally. This is an important part of grain marketing that can offer benefits; however, storing grain also comes with its own set of risks.

“There’s always a quality risk that comes with storing grain,” says Craig Abell, Syngenta business development manager. “It comes with higher fixed costs, because you have to manage moisture, keep the grain in condition, maintain the grain storage facility and cover interest expenses.”

Those fixed costs can add up. “Typically, we see crops stored for around eight months after harvest,” Johnson explains. “If they’re stored commercially, that meter is running.”

Johnson says on average, expect commercial storage charges of about 32 cents per bushel to store grain for that period of time, plus potentially another 8 to 10 cents of interest charges per bushel of corn. Since soybeans per bushel are valued at roughly three times that of corn, interest charges for soybeans can be as much as three times more.

That means if growers store 1,000 bushels of corn for eight months, they’re adding around $3,200 to $4,200 of overhead to their costs that they now have to make up at the next market rally.

Having a Plan

Keeping track of these costs is why many experts say growers need to have a written marketing plan. It’s also why farm-management software like Land.db®, the software within the AgriEdge Excelsior® program, can be a great resource.

“Preharvest marketing pays more often than not. If [growers] see a futures price that’s more than their input costs, and they can forward-contract it for a profit ahead of time, why wouldn’t they?”

Ed Usset
“The software can show you exactly what you have in the crop,” says Jeff Peake, product lead with Ag Connections, a wholly owned subsidiary of Syngenta. “Growers track how much they spent on seed, insecticides, herbicides and more, and the program does the math for them. They can see what their break-even yield would be at a given price and what their break-even cost would be throughout the growing season.”

Then, when it’s time to sell, growers can input their contracts to see exactly how much they made, based off those variable costs.

Land.db can also tell growers where their grain is. Using their mobile devices, truck drivers can keep track of load tickets every time their truck crosses a scale.

“You can see those tickets delivered to a bin and how many bushels were delivered,” Peake says. “You can even look at your location history to see how many loads have gone into that bin, how many you’ve taken out and what’s still there.”

Trying to beat the market without a plan and firm grasp on their numbers is the biggest mistake growers can make, Peake adds. “There’s new technology all the time in agriculture, so if there are programs that can help growers profitably market their grain, before or after harvest, they should take advantage of them.”