2 very different situations for the 2022 growing season

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Since the beginning of spring, 2022 has been a difficult year. From a later than normal start for most corn belt growers to erratic rainfall, the ranges in yield expectations for this growing season are ubiquitous.

Add a lot of heat at times with forecasts of hot, dry weather in the second half of July through August and this creates a difficult environment to market our crops. I’ll dive into how we might handle both of these situations given that the risk of making a mistake is high.

When the drought hits

First, let’s talk about growers who have a garden that’s more brown than green. If you keep missing the big rains, I feel sorry for you. It’s not fun to watch the rain come to your county line, break up and then reform somewhere on the other side. Although I’ve had good luck at most of our farms this year, I have customers within 30 miles who can’t buy a rain.

If you’re in this situation, making physical sales is not only hard to deal with, it’s risky. Given the wild swings in the market, growers who have been oversold in the past certainly don’t want to make that mistake again.

For example, many growers only hedged half their harvest in a year like 2012 – and with prices averaging $5 or even $6, that was great. But it didn’t rain. When corn went to $8, some of those who sold 50% and harvested 40% had to buy back those bushels. This is what you call the no-fun zone.

So what does a producer do when the markets offer big profit margins but he doesn’t want to make physical sales? For those who buy crop insurance, there is some assurance that if we underperform APH, we have strong protection. But taking advantage of high prices – well above the spring price of $5.90 – is something we’ve been pushing all spring and summer.

Just buying a put option might seem expensive, but if our breakeven price is significantly below the market, an affordable put option safely above it is a great investment. In fact, given years like 2008, when December corn dropped more than $4 after pollination, I hope we understand the need for this protection.

Update yield estimates

Now let’s talk about the lucky suckers that received adequate rainfall. While it’s too early to say there are record yields, the table is set for some of these growers who are in this boat. A couple of things we should consider doing are keeping our yields and probable sales up to date as we look at profitability, and also increasing our sales/coverage.

The www.AgMarket.App is similar to other products in that it calculates the break-even point throughout the year. We use this tool on a daily basis with the winegrowers we support. I encourage growers to update yields as well as the prices at which they market as the season progresses.

For example, let’s say a grower forecasts 200 bushels per acre of corn for this season with a breakeven point of $5/bushel. They have abundant rainfall and update their yield at 225 bpa. Simply by increasing the yield, their breakeven point drops to $4.55. If you’re also recording the sales you’ve already made, probably way above those levels, that lowers your break-even point even further. Keep your returns up to date.

When it comes to risk management, I like to increase hedging as our expected return increases. However, this does not necessarily mean making more physical sales.

For those who experienced a late season wind or hailstorm, you know what I’m talking about. While I’m fine with 40% projected returns on a physical basis, that’s about all I want to go for. Thus, the increase in coverage would be achieved by placing floors under the market. As in the previous example, I want to look at my break-even point and realize how much profit I can make by setting a floor way above that break-even point.

For those expecting big returns – if you have them plugged into your calculator – your ability to lock in big earnings in 2022 is certainly there.

I hope Mother Nature treats you well the rest of this summer.

Feel free to contact me or anyone from the AgMarket team. We would love to hear from you.

Contact Matt Bennett at 815-665-0462 or [email protected].

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