December 1, 2016
A long time ago I heard a guy say “you can’t kick a field goal if you don’t have a goal post”. True in football, true in life and sure to be true grain marketing.
I recently rode around with a Key agronomist and started entering all of the 2017 inputs for the crop that will be put in the ground this coming year. Understanding everyone’s break-even is different I made very conservative, yet realistic, estimations on inputs. S14 Key Cooperative cash price is used below.
- Assumption for land: $250 cash rent or $250 opportunity cost if you own the ground.
- Assuming corn on corn costs $679 per acre to plant this coming spring.Today, October 2017 S14 cash price is $3.30 – we need to grow 206 bushels to break even.If you were to grow 200 bushel corn next year your breakeven price is $3.40. If corn on beans costs $622 per acre to produce – at todays $3.30 cash price = 188.5 bushels to break even or 200 bushel corn would break-even at $3.11. (We are above that today.)
- Assuming beans cost $489 to plant. The October 2017 cash price is $9.39. Yes, 52 bushels of beans to break even! However, the bean market would have to rally to $9.78 to break-even if you were to grow 50 bushel beans.
When the message on the air plane tells us that our seat cushion can be used as a flotation device in the event of a water landing do we ever register that we will use it? Maybe our seat cushion is our revenue policy so we can start to make forward sales. I am not predicting market rallies or market crashes but we have time on our side before harvest of 2017.
Maybe the first step in setting the goal post for the 2017 marketing year is an average price contract, which we offer at Key Cooperative. 5000 bushels, 25 trading weeks, 200 bushels would price every Wednesday. Set the price floor at break-even, grain is delivered at harvest and price is established in the 25th week, no storage is paid.
Another powerful tool with time on your side is an offer contract. How much do you want to make per acre? Add that number to your break even and make an offer on part of your production.
If and when we rally in the grain market, I want to have the sweet spot figured out in case the rally is short lived. Where do you break even? Is now the time to make offers on your first 2017 bushels if the market were to rally beyond where you are profitable?