Marketing Decisions

The flexibility contract in the Farm Bill will allow many producers to plant almost any commodity on program acreage. If substantial acreage shifts into or out of any specific commodity, prices could change considerably.

Drought is threatening serious crop damage in many states and could drastically reduce crop yields for corn, sorghum, and wheat. At the current high price levels and uncertainty as to the extent of crop damage, the markets are very uneasy and tend to make volatile price swings.

In years where prices rise rapidly during the growing season in anticipation of bad weather reducing production, the rally often ends before or shortly after harvest. The top of that rally is often the highest price that could be received for that year's crop. It is also usually the time period in which the highest price for the next year's crop could be attained. Using futures markets, options markets, cash forward contracts, and minimum price contracts can help in selling the crop before or after it is harvested. Extending the marketing horizon can help to reduce risk and capture good pricing opportunities.

What market factors should be considered? (1) Watch the weather condition in U.S. and, specifically, the Midwest. (2) Watch the world conditions as decreased U.S. production may be partially offset by increases in other countries. Also, world consumption is anticipated to be greater than world production. The drought could increase that difference even further. (3) U.S. grain stock levels are very low which adds volatility to the market.

What are your alternatives for this year's crop? If you have a good to marginally harvestable crop, don't let a great pricing opportunity slip away. Prices may only be at these levels for a short time. Having a written marketing plan helps to avoid getting caught up in the emotion of the markets. In past short crop years, prices often peaked at or before harvest, so returns to storage are often poor to non-existent.

It is time to consider next year's crop. Foreign competitors may find it advantageous to expand production. Increased production in competing countries could hurt future U.S. exports. Farm program changes could significantly alter production decisions next year. Short crops are not normally followed by short crops, so production could be normal to above normal next year. Past price and market behavior would suggest that prices could be lower next year and that this may be a good time to price both this year's and next year's crops. Several pricing mechanisms exist which could be used in pricing a crop that has not been harvested or may not even by planted yet. These include futures, options, forward contracts, minimum price contracts other marketing alternatives such as cooperative pools. Further explanation of the use of these marketing/pricing alternatives can be obtained from the Texas Agricultural Extension Service.