All the attention is on the WASDE report that will be released today and may reset expectations for the rest of the year, but here is a couple of things to keep in focus about prices. During a recent exchange, a farmer proudly announced that he has 40% of the 2023 corn crop priced at $6.01 for harvest delivery.
That better cover CoP for most operations. Give it a plus. But now the other 60% that is not protected has fallen to $5.01 (plus or minus local basis) on 7/11/23. Average farm price equals $5.41 at zero basis as of close yesterday. Still should cover CoP for most operations, but CF may be getting tense. Be kind day; give it a plus.
Internally to this operation, those are the prices that matter, but the marketing plan appears to lack any provision for price risk management and has allowed the price to fall by $1.79 from the $6.80 high in April last year. The prices that are/were available define the competitiveness of this operation to others. The highest close since harvest was last October at $6.35, and the low came a few days ago at $4.94, generating a range of $1.41. The $6.01 sales are in the top 14% of the range, and the 60% of the current inventory that is unpriced is valued in the bottom one half percent of the available price range that was available. The average price of $5.54 puts the total inventory value in the bottom third of the price range. There is no secret to how and why many farmers are selling in the bottom half of the price range and don’t even realize the competitive disadvantage they are facing.
It doesn’t help that price range is often reported as high and low since the contract began trading, which could have been 2-3 years ago when very few farmers were interested in forward contracting. In this case it adds a “feel good” factor. If you hear that the contract low was $3.75 and you are positioned to average $5.54, or maybe more, it is like seeing a plus 70 basis. It looks good unless you stop to realize that your marketing plan is costing you $150 per acre.
Posted by Keith D. Rogers, 12 July 2023
