As we approach harvest, the grain markets have presented challenges, but also potential opportunities for the savvy producer. With current prices low and yields generally strong, it’s essential to strategize your marketing approach, especially as harvest pressure weighs on prices. Historically, late August to late September has been a period where prices typically tend to bottom out, but there are often ways to navigate this environment and potentially find value in the months ahead.
Current Market Situation
Today, we’re dealing with low prices due to strong yields and harvest pressure. While it’s tempting to focus on the immediate challenges, understanding how to align your grain marketing strategy with your crop insurance can help mitigate risks and potentially maximize your revenue.
Corn/Soybean Marketing Strategy: How to Match Up with Crop Insurance Floors
If you don’t have crop insurance, you can scroll down to the Looking Forward: Pricing Decisions and Potential Opportunities section. Feel free to contact one of our Crop Insurance agents or Grain Marketing advisors to see how Crop Insurance can coincide with Grain Marketing. For those with crop insurance, continue reading!
Yields: Average to Below Average
If you do have crop insurance and find yourself with below-average yields this season (specifically yields that are less than your coverage level of your APH), here's a suggested approach:
Fill any forward contracts as grain comes into the elevator.
Consider waiting to price remaining insured bushels until October.
Price remaining insured bushels periodically in October to match the average October price (Harvest Insurance Price). This method effectively prices your Corn around $4.66 per bushel or your Soybeans around $11.55 per bushel, by combining sales and insurance payments. (Contract penalties and basis not included)
Considerations:
You might incur a month or two of storage costs, but this could be worth it to better match up with your insurance coverage.
While you’re not required or recommended to follow this exact plan, it serves as a good guideline for understanding how crop insurance interacts with grain marketing and where the protection ends.
If you choose not to follow this strategy, you’re exposing yourself to the risk of market fluctuations, which could either increase or decrease your final revenue beyond the insurance guarantee. It’s up to you to decide if you want to take on that risk.
Yields: Above Coverage Level?
For those with yields exceeding insured bushels (APH * coverage level), pricing all of your bushels at the October average will secure your insurance guarantee set back in February, and potentially even more revenue.
The alternative is holding onto your grain for potentially better prices, but there is just as much risk that the market goes lower and your revenue decreases.
Reflecting on the Year So Far
2024 has been marked by falling grain prices, but it's important to remember that we started the year with solid Corn and Soybean Base Prices. Looking back at Corn prices specifically, the market provided limited opportunities for higher than insurance pricing.
Still, using your insurance as a floor price of $4.66 per bushel has proven valuable, especially when current trading is hovering near $4.00. For those who followed Market Alerts from our Market iQ service, there were opportunities to price up to 60% of target sales, averaging $4.80.
*Prices obtained from CME Direct, farmprogress.com, producerag.com and usda.gov
**Disclaimer: Past performance or historical record of futures contracts, derivatives contracts, and commodities is not indicative of future performance. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices.
Looking back at Soybean prices, the market provided a few opportunities for higher than insurance pricing.
Still, using your insurance as a floor price of $11.55 per bushel has proven valuable, especially when current trading around $10.00. For those who followed Market Alerts from our Market iQ service, there were opportunities to price up to 60% of target sales, averaging $11.97.
*Prices obtained from CME Direct, farmprogress.com, producerag.com and usda.gov
**Disclaimer: Past performance or historical record of futures contracts, derivatives contracts, and commodities is not indicative of future performance. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices.
Looking Forward: Pricing Decisions and Potential Opportunities
As you consider your next moves, several strategies come to mind:
Price Your Grain: With the costs of storage and the influx of new crops, the most straightforward choice may be to price your grain now. This option locks in your cash price, eliminating risk but also closing the door on any future market gains. Insurance payments may have helped cover any revenue loss if you're insured.
Hold for Better Prices: There’s potential for better prices later this year and into early 2025 as the market turns its attention to the South American crop, which often brings added volatility. However, holding grain incurs storage costs and comes with the risk of worsening basis or lower prices.
Lock in Basis, Leave Futures Unpriced: This approach stops storage costs at some elevators while keeping your upside open. There’s a risk of falling futures prices, and you may need to pay a fee to roll futures to the next month if prices don’t improve.
Lock in Basis, Leave Futures Unpriced and Buy a Put Option: This strategy allows you to protect against lower prices while still leaving room for potential upside if the market improves. The put option can help protect downside risk for the cost of the put option.
Sell Grain and Buy a Call Option: This strategy involves selling grain while buying a call option to keep your upside potential open. The only risk here is the cost of the call option.
Sell Grain, Buy a Call, and Sell a Higher Call: This strategy reduces the cost of the call option but limits your upside. It's a cheaper way to maintain some market exposure.
But which one is the best for this year?
The answer to that is based on you. Are you happy with the revenue you’d receive by selling today? Does it cover enough of your expenses and meet your productivity goal per acre for this year? This could be through grain sales and insurance payments.
If you want to continue to participate in the market, there are multiple ways we listed above. It just depends on how much risk/reward you want to leave yourself to. Most years, there hasn’t been a lot of upside after harvest due to storage costs, basis changes, rolling fees, etc.. Sometimes it depends on how long you can wait before the markets start paying attention to the South American crop or our growing season for next year’s crop here in the U.S.. However, there’s always the wildcard factors that are so hard to predict. Can the Russia/Ukraine war stir up the markets again? Do these carbon credits create new demand and/or start shifting acres among crops? What will be the next thing that causes the heavy short speculative position in grains to buy back their positions, spurring higher trade? Nothing is guaranteed.
Everyone is different. Find the Post-Harvest marketing plan that works for you.
A Note on Option Costs
Option costs have returned to levels similar to those before the COVID-19 pandemic and the Russia-Ukraine conflict. As of September 18, 2024, an at-the-money call option for Corn expiring next April costs around 25 cents before fees. Holding grain until then could accrue 54 cents in storage costs at $0.0675/mo, which is something to consider.
Final Thoughts
The grain market has been challenging this year, but by aligning your marketing strategies with your crop insurance and considering the range of available options, you can attempt to navigate these conditions more effectively. If you have questions or need further guidance, feel free to reach out—we’re here to help you make the best decisions for your operation.
Austin Goering
Sr. Farm Services Developer
AG360 Grain Marketing
620-345-4602
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