Boost grain marketing with futures, basis and carry

first_imgShare Facebook Twitter Google + LinkedIn Pinterest The experts weren’t expecting the USDA to raise yield estimates.  Many don’t believe the numbers, but everyone is now trading off of these new projections.  Farmers probably won’t be selling at these prices.   In the past when farmers waited futures eventually creep back up to $4 corn and $10 soybeans.  We’ll see if that strategy works again.Some are saying this will be the highest yield posted by the USDA for the year for corn and soybeans. It has been noted that the USDA has trouble estimating crop yield in wet years. Once harvest starts in 45 days there will be a better understanding of yield potential.The Ohio’s Country Journal did a crop tour last week in Ohio and believe the yield on corn could be 166 to 175 while the USDA pegged it at 168. Some experts were thinking Ohio was closer to 150. Read more here in the east have a mix of good and bad corn fields.  In the west farmers say fields are better than expected after such a wet spring, while northern farmers are expecting record crop yields.This week Pro-Farmer starts their crop tour.  If their estimates are drastically different from the USDA, there could be an upswing in prices.  However, it should be noted that crop tours can miss yields by wide margins. It’s hard to estimate what kernel weights will be as late season moisture can have big effects yet on the final yield.Grain marketing recap for the 2014 corn cropWith new crop corn being harvested in the South, the 2014/15 marketing year is essentially over.  I continue to tell farmers that looking at cash prices isn’t enough.  Savvy farmers examine every aspect of the marketing process to optimize their grain marketing strategy.Futures have the biggest movement potential for farmers.  In the last two years corn has had a $2 per bushel range ($3.25-$5.25).  My farm average was $4.78, which puts me in the top 25% of the market move.  Hindsight tells me I should be happy with this. This price was established using a combination of futures, options and spreads, all of which helped reduce my risk and give me a good price.Basis  (the CBOT price minus the local price available) has been running independent of the CBOT values this year.  The range for basis was nearly 40 cents from top to bottom (-.50 to -.10) for the season.  I set the basis for my farm in mid-January at nearly 20 cents above the local market for summer delivery.  I just missed the top by 5 cents.  I was nearly in the top 10% of the basis market this year.This is the first year in the last seven that I didn’t hit the very top of the basis market.  While I’m mildly disappointed, taking a 20 cent premium early in the year while reducing risk is something I would do again.Carry — many farmers over-look or may not understand the potential in market carry.  Carry represents how farmers get paid to store grain until early summer guaranteed.  This year the high was hit in mid-Oct, paying farmers 32 cents to hold their grain until the following summer.  (Usually it hits the top of the market before Dec 1.) I set my carry price at 29 cents (or 3 cents off the top).  That’s another top 10% finish.Evaluating PerformanceI can only truly evaluate the performance of my marketing plan after I’ve broken down each component individually.  When farmers tell me their cash sales, it usually isn’t the whole story.  Maybe they picked their futures price well, but missed substantial opportunity in the carry market and who knows where the basis was when they made their trade.How to make an additional 10% on your grainIf a farmer works basis and carry into their marketing strategy they can increase their profits by 10% or more.  It doesn’t matter if the market is at $3 or $8. Savvy farmers are learning how this kind of marketing is beneficial to their bottom line. This is not a reinvention of the wheel, but merely adopting a plan that already exists and is used by all the major grain companies.My Current Positions in Corn POSITION – CORN201420152016Corn Sold100%100%28%CBOT Price$4.78$4.71$4.50 estMarket Carry$0.28$.30 est$.30 estBasis on Farm($0.15)($.20) est($.20) estOptions & spread profits$0.08––Cash Price$4.99$4.81  est$4.60 est Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results. He can be contacted at [email protected]last_img