Yesterday and again today we have all of our grains in a Sell Signal. Having all of our grains in a Sell Signal on July 13th when U.S. crop condition reports are rated better than normal and mostly improving is something we seldom see. You are being presented a perfect selling opportunity! Don’t miss it! Great opportunities are never missed….they are just taken by somebody else.
Our Sell Signals normally last 4-6 days, so be ready for corn and winter wheat to stall out and begin their long slide to late summer lows.
I spent a couple of hours with a new consulting client yesterday, something I really enjoy but don’t get to do as often as I like.
We quickly took care of what to do with the last bushels in the bin…sell them. Then we looked at new crop and on his farms with heavy soils he expected reduced yields from too much rain. He actually had just finished planting a 40 acre patch of beans last week. On the rolling and lighter farms he thought he had good crops. Across the whole operation yields should be normal to a bit smaller.
For new crop corn, I encouraged him to sell all the bushels that won’t fit into the bins on the farm using what he believed were the real yields. If you are not sure, send your agronomist into the fields for an up to date estimate. I also encouraged him to look at cash flow and make sure enough bushels were sold to keep the checkbook from going flat until March.
He has 70% corn and 30% beans in his acreage mix and he was following our Sell Signal finishing selling the bushels he couldn’t store on the farm.
For the bushels of new crop he will raise but not sell until next spring, I encouraged him to buy put options to cover the likelihood of price decline into harvest. This would be new for him and we spent a lot of time talking about how the puts work. In farming everything is weighted to make money with higher prices. Most farmers have nothing that offsets price decline, unless they are diversified into livestock.
Put options are a financial tool that makes money when prices decline. That is really all you need to know, but many farmers get caught up in all the details and miss out on the big picture overview. What other tool do you have in your arsenal today that will make you money if prices decline? You have to learn how to use the tool called puts. And you will only learn if you do at least one for several years in a row following our system and call it education.
When you buy the put, write down what your new crop bid was at the time. That way you can see what happened to your unsold inventory and compare that to what the put did. You will find that most years the unsold inventory cost you a lot (which will give you more courage to sell) and the put will make up some of those losses.
We also talked about selling 2011 and 2012 corn. He already had sales on the books but the percentage was small based on 150 bushels per acre and he immediately said he had not raised a crop that small in several years so that should be a safe number to work with.
The problem is if you use 150 times the cash price he was bid of $3.87 it only comes up to $580 per acre which is not very profitable. I encouraged him to use 180 bushels per acre which made the gross lying on the table worth $696 per acre. Since we are not going to sell all the bushels anyway you must use the size crop you are planning on raising.
Being conservative with your yield estimates for distant crop years is a big mistake and most farmers are guilty of making that mistake. Sure once you plant the crop you have to adjust to the reality in the field, but I guarantee your 2011 crop will be a big one between now and next March. Your 2012 crop will be big for the next 20 months, so sell accordingly.
Using a small yield estimate guarantees you will not sell enough and likely miss out on profits. If you won’t sell $700 per acre gross what are you thinking? How often does the market give you $700 gross in worrisome economic times? Sell more than normal then buy enough crop insurance to keep from having your rear hanging out.+
If you have found yourself selling at harvest or paying commercial storage most years because the harvest was bigger than expected, you are using too small of yield estimates.
Today is the 6
th day of the corn and Chicago wheat Sell Signals. It is also the 5
th day of the KC wheat Sell Signal and 3
rd day of the Minneapolis wheat Sell Signal. And last but not least it is the 2
nd day of the soybean Sell Signal.
