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Gearing Up for the ’04 Crop: A Peek at the Plays of Area Marketing Groups By Marlene Dufault As planting nears, here’s a rundown of grain marketing strategies and issues that are being discussed by some area marketing groups. Note that changing market conditions since this article was compiled (early March) may have also changed the strategies and focus outlined by these marketing groups. MT Group Looks at Wheat, Peas Peas are getting to be a big crop in this area. More growers are looking at alternative crops in general but specifically the pulse crops. I think there will be quite a few more acres of yellow peas, depending on the loan rate. As a group, there is some old crop wheat left to sell, maybe 10% or less. We don’t sell together as a group. We get together and toss around ideas. We have come a long ways as a group, sharing information and ideas. When we meet, we have productive meetings. As far as weather, we have a lot of snow in our area which is good because the ground got covered before it froze. We are hoping it melts slowly so we don’t have a lot of erosion. We need to absorb as much as we can because the moisture is badly needed. – Kim Murray, Froid, Mont. marketing group Tracking the Basis From the discussion in the club, there are very little old crop soybeans left. Those that may have some left are not saying what they are holding out for. Or, they might be having a transportation problem, not being able to get them out. There is still quite a bit of old crop wheat left. There is some big concerns there because if you look at trying to roll any contracts you may have into a future month, all the future months actually have weaker prices than where we are right now. What some of them are concluding is that unless they are willing to really ride through a planting intentions or weather scare then there aren’t too many more opportunities to be pricing old crop wheat any better than what there is right now. Unless they are willing and have storage to hold it, I really think they are looking for the first available opportunity where they can get a good basis and be moving it. We are still very much involved in DTN charts as before. One of the strategies the group looked at this past winter, which worked well last year but not very well this year, is selling a futures contract when we get a price hike in wheat. If that contract would drop back down close to a loan support level, they would actually get out of that contract. If wheat would spike back up again, they may sell another contract. It was the possibility of getting in and out. Not just doing that on a board, but actually doing that with the elevator that they had a contact with, and actually committed bushels to. With having bushels committed, how do you make that work? What the elevators were doing is that they had their own broker that they were using so they didn’t have a big fee to get in and out of these contracts, which was one of the keys. The other was, if they had a gain on the contract, or even a loss, what they were doing is adding or subtracting it to their basis. They weren’t actually getting paid when they were getting out of the contract, they were waiting when they were delivering the bushels. This was kind of an incentive for the elevator to work with them. The group was kind of excited about trying something like that and find local elevator managers to do that. Now, with the big change in the market, we haven’t had the abilities to do that very well. That was the strategy the group was looking at but at this time, is has fallen off their radar screen. Right now they have a little game (among themselves) going where you are supposed to pick the top futures price between now and September for Minneapolis spring wheat, November top for soybean contract and a December top for the corn contract. The one who comes the closest without going over wins the game. Right now, there is quite a variability going on in what some are guessing. I think trying to figure out what a good price is for locking in on new crop it tough. One of the things that is holding them back right now is the concern of the basis. We have basis levels that are wider than they were last spring, summer and fall. Part of that is with the tight rail situations, elevators really haven’t gotten contracts yet in their hands and so they have to protect themselves. The group is really unhappy with some of the basis levels on the new crop bid. Elevator managers agree that in time it will work out and they will be more competitive with what their basis’ are. Some are looking at selling future contracts and leaving the basis open, hoping to set those at a later timeframe. The group has sold wheat, corn and soybeans as a group in the past but have not done that this last year. They have tried to negotiate as a group on a basis contract and then if someone wanted to go out and sell a futures contract at a different level than someone else, they would still have that availability. But they have tried to group enough bushels together to try to make an attractive offer on the basis contract. The reason they did not do it this year is that they haven’t been able to get an acceptable basis. With wheat, for example, they would like a zero basis, which has happened yet. The best there is now is $.25. They realize that until this railroad thing gets taken care of, there isn’t a lot of negotiating to be done. In the past, the group has had three people assigned to follow basis pricing for soybean, corn and wheat. This allows a lot of freedom and flexibility say, if they can get a $.10 contract on wheat, lock in the basis then set a futures price at a later date, a lot of them are comfortable with that. Where if they have to sell the futures contract and lock in the basis all at once, a lot of times that would be pretty tough to do as a group. Our group is pretty excited about planting this year. They see this year as having very good prices and the only thing they are disappointed with is basis. Still, they look back historically and they see some good opportunities in the markets now, and there is a lot of optimism. One producer with a 50% wheat/soybean rotation that has been good for him is now looking at what the price guarantee is going to be on soybeans, and he is recognizing that from an economic standpoint, he might have to plan way more soybeans than agronomically he would like to. And he realizes that it will put him in a bit of a corner so in other words, if he plants three-fourths of his farm to soybeans, then how does that affect his plans for the following year? – Randy Grueneich, Barnes County Valley City, N.D. marketing group Following Corn/Bean Price Ratio Normally, as the prices go up, futures prices go up, the basis has a tendency to widen and sometimes really seriously widen. We have been able to get some pretty good basis on corn for next December, January and February. It is probably not as good as it is right now but it is way better than what they were offering here a month ago. We are looking at corn basis with a year from now January bid on corn at 26 under the March futures which would get us just about $2.80 cash. We are trying the same thing on the wheat, but wheat is at kind of a disadvantage as it hasn’t had a real good basis lately. There are quite a few guys making soybean sales but still holding on to wheat. Seasonally, wheat tends to drop off after that November high. If the guys didn’t get it sold before that, which a lot of them didn’t, we are looking at coming back into the March/April timeframe to see if this thing will come back and that is what exactly happened. This thing has probably moved up 30-35 cents in the last couple of weeks. We were looking at a $4.50 price to unload the wheat and it did about hit $4.50. I told the guys the old saying is, “anytime the price gets higher than you thought, earlier than you thought, you gotta sell something.” That is exactly where we are now with old crop and new crop both. We didn’t figure old crop wheat would get this high quite yet, but it is. I think that if the guys are holding much wheat, they’ve got to look about moving it. The biggest excitement in the group right now is corn. It looks like the market is really trying to buy acres. We are doing a lot of comparison (even if the guys aren’t going to plan corn) between the corn/bean ratio. Every time one goes up, the other has to go up. We are looking at December corn and we are taking it times 2 ½ and that is what beans have to be, and it is staying within a few cents of that every day. So whether you want to plant corn or not, use that corn/bean ratio to price corn because one of them will stop going up pretty soon and that will cause the other one to quit going up also. From time to time, we have elevator managers come in to speak to the group. It is nice to touch base with elevator managers because they have a real handle on the cash situation. – Mike Lockhart, Ulen, Minn. marketing group Following the Wheat Market – Merlin Boxwell, “No Whiners” marketing group, Cutbank, Mont. Corn, Beans Edging Wheat Income Potential I’m sure there is old crop within the group that hasn’t been sold yet. But the markets are very good right now and moving up and so I would look at just trailing that old crop into the market. Every time the market goes up another dime or so, just continue to move another 10, 15, 20% of the commodity. The best thing to do is to use a stepped-up marketing plan and reward the market with each advance with some more sales. In the new crop, we have spent some time looking at the revenue coverage products for the insurances. It is going to be tough for wheat to compete in the area here where producers have good averages in beans and corn, simply because they can buy so much revenue coverage. But we have looked at, as far as the new crop, strategies like hedge-to-arrive on some part of the wheat or soybeans, even corn now. We are up at levels that make good money. We are thinking of using hedge-to-arrive on one-third of the crop, maybe options on one-fourth to one-third of the crop and probably remaining open on one-third of the crop yet. The options are very expensive so again it goes back to some strategies about buying one option, selling another, trying to establish a price you can live with. We don’t sell as a group but three years ago we formed a limited liability partnership with 15 members of the marketing club. We formed a trading club within that and we have a legal trading club that is involved in futures and options. We have done some trading with that and are presently in soybeans with that particular club. It is working out pretty good and has been a learning experience for the members because too many times when we go into a strategy we don’t have a clear cut goal, we end up on the short end of it, not making any money. However, it has worked better when there has been a clear cut goal: for example, every time we buy an option and double our money, we would take it out. We have a strategy where we have bought and sold some options and we are up $2,000-$3,000 on that particular contract right now. The main thing is that it has helped some members to see how it works. We have had several members that have duplicated the actions of the trading club on their own farms. They had gone out and done it because it worked in the club, or saw how something didn’t work but saw how to fix it so they took it home and applied it themselves. The trading club doesn’t make a lot of money from the standpoint of the trades, but it gives people a chance to see how it worked or why it didn’t work. And that is really important. As far as planting this year, it is really up in the air right now. I just ran a budget for one farmer in the area this year and the low dog on the totem pole was wheat again. We had a fairly low price on it because we don’t know where wheat is going to be down the road. Wheat really has to make a run in the prices in order to get people’s attention because if they have a 30-35 bushel soybean average or a 90-100 bushel corn average they could probably buy $175-$200 worth of coverage guaranteed revenue. And for maybe anywhere from say $8 -$12 as a premium range, they can’t buy that kind of coverage in wheat. Wheat is going to have to come up in the markets to get people to plant it. It is just a fact of life. We have had a lot of scab go through in the mid-1990s but this past year’s wheat crop was excellent. But the price of wheat at $3.50 when you raise 40 bushel wheat just doesn’t compete with a 30-35 bushel soybean crop – assuming we get the moisture at the right time – even at $5.50 - $6.00. If you can go out and buy revenue-based crop insurance for let’s say an average of $10-$12 an acre to cover $175 worth of income per acre on your farm planting corn or soybeans, you are still going to have some wheat rotation in there, but it’s going to be limited, because why would you want to plant something that makes you $40-$50 an acre less? – Steve Metzger, Central Dakota Marketing Club, Carrington, N.D. Rail, Fertilizer Concerns As far as old crop most of the soybeans are gone. There is still quite a bit of old crop corn left. Most of that will be hauled to town when they find room in the elevators. Most of the barley is contracted. I don’t believe there will be quite as much interest in barley in 2004 as there was in 2003 yet there is some pretty nice price levels too. There will probably more soybeans planted again if the prices stay at levels that they are right now. Probably another reason we will see more soybeans too is the high fertilizer prices. We have had outside speakers come in to speak, one of which was Randy Martinson of Progressive Ag. We talk about the value of the dollar and the fuel prices and fertilizer prices. Fertilizer is on the negative side of everything right now. – Virgil Dagman, Jamestown Marketing Groups, N.D. Pricing New Crop Wheat We are watching crop reports, especially China. Crop insurance is something we also focused on in early March. We had a joint meeting with another marketing club to review crop insurance options for those who can still change their elections. Dryland spring wheat is the main crop growing in this area, with some durum and a few peas. There are only a few members who have old crop and probably the main reason that hasn’t been sold yet is they haven’t been able to get to their bins. We have had one of those winters that we have had an abnormal amount of snow. We have contracted some futures with new crop wheat. For most of the new crop wheat, farmers are doing a hedge-to-arrive or futures fixed contracts with the elevators. The futures price right now is Sept/Dec deliveries about $4.19, subject to local basis with that being about 20-25 cents under the Minneapolis futures. We are looking at cash price in the fall around $4.00 based on today’s prices. We use the futures market for a measuring tool and contract with local elevators, with some doing options and a little in the futures market. We have been meeting since 1999. Last year we came off of that 2002 high $5.00 wheat price in the fall at harvest time. The attitude is that we are pretty upbeat with the potential and I guess the price level is a lot better now than past springs. On the Montana Market Manager web site we use the futures and options; the historical and current basis is a real useful tool as well, which looks at the Portland delivery point, which is our delivery point for all our wheat. We also look at local cash prices. Our members feel this site is easy to use and helpful. –Duane Kurokawa, Early Bird Marketing Club, Wolf Point, Mont. More About Marketing Groups For more information about marketing groups in Minnesota, contact Betsy Jensen, ag commodity instructor, Northland Community and Technical College, by email at bjensen@nctc.mnscu.edu , or by phone, 218-689-5375. In Montana, find more information online at www. montanamarketmanager.org, or contact Alex Offerdahl, Market Manager program coordinator, ph. 406-761-4596. In North Dakota, find more information about marketing clubs online at www.ag.ndsu.nodak.edu/aginfo/cropmkt/clubs/clubs.htm, which also has resources for marketing groups. Marketing Groups can also find a risk management curriculum online at http://trmep.tamu.edu/cg/list.htm . Here, extension economists from Texas A&M and Kansas State have prepared a series of fact sheets to be used as primary educational handouts or to supplement speakers who have covered particular grain marketing or risk management topics. Those interested in forming a marketing group can find help in doing so online: http://trmep.tamu.edu/cg/overheads/rm2-34oh.pdf (Texas A&M guide to organizing a marketing club) and www.ag.ndsu.nodak.edu/aginfo/cropmkt/clubs/mcinfo.pdf (A guide to organizing a marketing group by NDSU). Minneapolis Dec Wheat Futures Prices Between Jan. 1 and Expiration
Dec Corn Futures Prices Between Jan. 1 and Expiration
Nov Soybean Futures Prices Between Jan. 1 and Expiration
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