As the 2010 harvest season winds down, we can see that we have a lot to be thankful for.
Just four weeks ago we experienced one of the biggest rainfalls ever for a 24-hour period during the month of September. At that time it looked like we would not get back into the field for a long time. Many of us remember the month of October in 2009 where it rained almost every day and we didn't finish up harvest, including tillage, until the first week of December.
However, the big rain, while causing some damage in low-lying areas, quickly ran off and harvest began in earnest the next week. Add this to the fact that the first three weeks of October have been some of the driest for that month on record and you can see where this really has been a great harvest season.
Rich Baumann and Wayne Schoper
The other piece of the puzzle now that we have raised an excellent crop is marketing. We have seen a big surge in corn and soybean prices since late June. However, that does not necessarily mean that farmers received the kind of prices that we are seeing now. Most farmers utilize forward contracting as a way to price the crops that they raise. Forward contracting is as simple as contacting your local coop, determine what the local price is for the commodity that you have to sell, and agree to deliver a certain amount of bushels to the elevator during a certain month. By forward contracting, a farmer can take advantage of prices that offer a profit when they are available. But when does a farmer know when to start selling? By determining a break-even price and selling in increments when prices are above the break-even price is a good place to start. An Excel spreadsheet is available at swroc.cfans.umn.edu to assist in this decision. Many bushels have been priced for a year or more for delivery now with final prices all over the board. Historically, in seven of 10 years, forward contracting grain will achieve a higher price that waiting until harvest or after harvest to market the crop. We will only see market highs at harvest time one out of 15 years. So a market rally of this magnitude at harvest time is a fairly rare event.
Many farmers who forward contracted significant amounts of their 2010 crop previously are disappointed by not being able to take advantage of the current rally in grain prices. However, when a farmer sells their crops by forward contract it is usually at a profitable price, so how can this be a bad decision? That is why it is so important to know your breakeven price for corn and soybean production and market accordingly. Breakeven prices for the 2010 crop range from $3.50 to $4.10 for corn and $9.25 to $9.85 for soybeans. Forward contracted prices at these levels have been available several times since 2008 for the 2010 cropping year.
The basic principle of forward contracting is to take advantage of prices that offer a profit to the farmer. Current prices may represent a good opportunity to get some crop priced for 2011 delivery. Forward contracting is one tool to a marketing plan and an important part of a successful farm business. A decision to sell some of your future production at a profit is never a bad decision.