We have been out at meetings for the last few weeks. It was good to see many of you. We are home now until Classic and then we are done. Lots of good meetings. This week I personally was in Des Moines and Louisville. Everywhere I go I hear the same thing – stocks are not out there, no piles. Few bags, and we’re moving out bin corn. But no one can afford to wait for USDA to revise numbers and miss being able to lock in a profit on 2020 crops.
Our meetings have focused on finding a strategy that makes sense for the farming area we were at based on local yield and costs. We showed you a tool we use that helps you understand how to balance the sold and unsold bushels so that we get 2 results.
- Profit no matter where the market goes – even if you do nothing else the rest of the year.
- Balance in your sold versus unsold position so that if there is a market rally, your farm is participating in the move.
Wednesday’s example was in Des Moines. The strategy below locked in a minimum of $700/acre and resulted in a $80/acre minimum profit. But if the market does catch fire, the hedge is partially offset and thus a percentage of those bushels are gaining with the market.
When we ran this strategy in front of a crowd of farmers, the first reaction was to sell 25k bushels. But even though the strategy works great, the amount of at risk unsold bushels still causes the farm to slide into a net loss if prices fall (with a zillion acres in 2020, a sell off could happen). So the model below helps us tune in the number of bushels we really need to sell that balances the farms risk.
Now the sold bushels (cool blue – no stress) are in good balance with the unsold bushels (red and stressful if it is going down). No matter how low prices go we remain profitable. But the good thing is we have significant bushels open so if markets do rally, this farm income can move from $700/acre to $860/acre on the bushels we had sold…and the totally unpriced bushels are worth $1000/acre. Time to cash in.
We also used a very conservative yield. Once August comes and we can raise the yield, then income would jump another 120/acre.
Now that we are all back in the office, we want to get in touch with any of you who would like us to run this analysis. It might be the best thing you do in 2020. Please call us for a demo using your farm.
Bill Biedermann
AgMarket.Net
815-893-7443 o
815-404-1917 c
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