Weather may affect crop pricing strategies

Weather may affect crop pricing strategies South Dakota producers should be aware of the potential for a weather-influenced crop market during the 2000 growing season, said Al May, Extension grain marketing specialist at South Dakota State University.

The potential weather market may develop as a result of certain areas of the central Corn Belt, including Iowa, Illinois, Indiana, possibly facing below average moisture during the growing season.

On the other hand, fairly large world stocks of wheat and corn along with relatively high soybean stocks due to the current harvest in Brazil may outweigh the impact of a moderate or minor weather situation, commented May. For South Dakota producers, one note of caution: Be careful in a rising market situation to not forward price grain to the point where one could develop production risk problems.

"People will get in the field early [this year], but then they need to be careful to constantly evaluate the growth and potential yield of their crop so they don't overextend themselves on the number of bushels they commit," he said.

Knowing the costs of production, especially the cost per bushel, will be important for producers during the 2000 growing season. These numbers will help them know exactly what price they must capture to cover their costs.

In terms of pricing, many producers may be using the loan rate for their floor price unless the market rises and the loan rate falls below the market price, said May. In a potential dry year, farmers must be cautious when evaluating the amount gained through Loan Deficiency Payments (LDPs). These are based on bushels raised, not acreage commitment.

During a dry growing season when one may raise half the normal crop, one may need to budget on the possibility they'll be getting less through LDPs because they are producing less bushels. Producers unwilling to commit bushels may "ratchet up" their floor price as May calls it. First, a producer sets a series of floor prices. The market may rise through the first, second, third, etc. floor price and then may take a downturn. At that point, the producer should make a sale.

"This method is going to take a fair amount of discipline," he said. "You have to be ready to pull the trigger when the market drops back through that floor price."

Whatever method producers use to price their crop, they must constantly evaluate their potential yield and price compared with the loan rate, advised May.

Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>