January 12 Crop Report: Are You Prepared for a Game-Changer?

Wednesday, January 7, 2015

It’s hard to believe 2014 is over and we’re into January of a new year. Now that holidays and the year-end tax crunch are over, it’s back to tackling your biggest unresolved question: How to sell your stored 2014 crop?

"What’s happened with a record harvest is that lots of bushels went into bins,” says Jennifer Kazin, a risk management expert with Cargill. “Now is a good time for putting a plan in place for that crop.”

Timing is everything.

Why plan now? Because a potential game-changer lands on January 12: The USDA will release its World Agricultural Supply and Demand Estimates, containing final production estimates for 2014, quarterly grain stocks, and current demand estimates from sectors like ethanol, feed and exports. The report will drive prices for 2014 crop and much of 2015’s as well.

“The market has rallied considerably since October and it’s been a gift. But there’s no guarantee prices will continue at current levels,” says Kazin.

In fact, market response can be immediate and dramatic. According to industry analysts, during each of the last five years, March corn futures moved between 52 points lower and 23 points higher within 24 hours of the January release.

“The big talk around this report has to do with corn,” says Kazin. “The industry is talking about a potential reduction in corn acres from the June Planted Acreage Report. An acreage reduction itself would say prices will go up, but changes in yields are a potential offset.”

Another downward counter-force may be stocks. “We will probably see a recent all-time high in corn supply of 15.2 billion bushels,” says Kazin. “Industry analysts see January 1 stocks around 11.2 billion bushels."

As big as the crop is, there’s no margin for error.

In the boom years between 2006 and 2013, farmers were able to absorb the volatility triggered by the report. But with prices hovering around break-even margins, movements this month could make the difference between profit and loss.

“If you have 50% of your crop in the bin right now with no level of protection—and you’re hovering in 20% of break-even range—you might want to think about putting a plan together,” advises Kazin.

So what are your options? That’s where Cargill’s Grain Marketing Solutions come in. Many Cargill contracts give farmers downside protection while preserving upside opportunities.

Consider locking in a minimum.

One of the best contracts for current conditions, says Kazin, is Minimum Price: Farmers can sell to Cargill for a set price, but if the market moves higher, they could instantly attach a call to their contract to cash in on the gain.

With this level of control, there is little reason not to make a marketing plan.

“Unlike some analysts, we’re not telling the farmer to wait,” says Kazin. “We’re saying be prepared. That means going back and seeing the costs you had in place pre-harvest. Now that harvest is done, plug in your final production numbers and understand your break-evens.”

Those break-even numbers give you the information you need to compare contract options and calculate scenarios. To help with this process, contact your Cargill Farm Marketer.

A potential game-changer looms on the horizon. There are ways to give yourself some predictability, even if the markets do not.