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SC Iowa | Crazy times we live in, eh? Two years ago if offered the chance to sell $3 corn, we'd all have been trying to do 125% of a crop--now we discuss if selling $4.50 is the right thing to do!
Let me start with a couple of thots:
IF we can maintain a US crop of 147-150 yield, then the scenario is pretty bright that we'll have $6 wheat, $9+ beans, competing with corn for acreage this fall and next spring. I've said that gives us a 50/50 shot at Dec 08 corn between 4.75 and 5.00 in Chicago.
Under that situation we grow enough corn to keep the current demand base intact and then need to find a way to plant 93-95 myn acres of corn....and with corn on corn probably under-performing in '07, that is a pretty big task when you could be selling $9 beans off the combine in fall of 2008.
The problem scenario is if we have a bad crop this year---then price levels go to $5-6 short-term, but that ends up in "demand destruction" for several sectors including livestock and ethanol.....cattle numbers would go down because we don't have a supply of cheaper forage to offset the need to feed high priced grains......certainly you would see some ethanol projects either cancelled or put on the burner, and there would be plenty of financial stress for existing plants.
NOW, would I tell someone who was comfortable with their cost structure and production history of their land to forgoe the opportunityto sell $4.50 corn?. Certainly not if you can live with a year and half of marketing and weather uncertainties and meet the above criteria.
Last item would be how to go ahead with the sales....Are you thinking straight hedges you carry yourself, or HTA sales with a grain business? The answer to that lies in what you perceive as changes in your marketplace between now and summer of 2009. If a lot of new demand is coming in, I would prefer you carry the hedges yourself to maximize your flexibility to deliver to the best market (assumes you have on farm storage, so may be a moot point if you don't). That will require a financial committment on you, and possibly your banker's part...you just want to have that in place before things start rocking and rolling, because you sure don't want to get blown out of a hedge at the high.
Good luck in your decision making
Ray J
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Forward Contracting Grain
