Making the Most of the 2020 Fall Rally
Dry weather was already taking the top off yield in some regions of the Corn Belt this summer when a mid-August windstorm knocked down about 2.3 million acres of corn in Iowa—a potential loss of 100 million bushels. The hit to yields, along with new market demand from China, has driven a giant market rally this fall.
When the bushels are in the bin, will prices settle or keep rising? That’s the billion-dollar question, according to two ADM crop risk specialists who visited with hosts Doug and Shelby in this month’s In The Driver’s Seat podcast. Dave Rosenmeyer, who covers the upper Midwest, and his colleague Brian Wiggins, who covers Illinois, Indiana and the East, both offer thoughts on how to best capture value in this volatile market.
Here are highlights from the discussion:
Use a mix of cash and contracts to meet your goals.
Prices have risen, but will they continue to go up? You may have sold a portion of your crop already, but as the rally continues, you can benefit by giving your marketing plan another look. Consider contracts that keep you in the market while delivering some certainty and cash flow.
“Look a little further out at prices and start planning and asking yourself – do I store as much grain as I can, and price some for later delivery? Or do I take additional grain to the elevator in the fall because prices are a little higher than I expected? It’s about reassessing,” says Rosenmeyer.
Producers who want to stay in the market often use a traditional Storage contract or a Delayed Price contract. This allows you to capture upside, but the problem is, the price could go down. To navigate this possibility, Rosenmeyer and Wiggins lay out a few possible contract options:
- ADM’s Minimum Pricing contract offers more security. You can lock in a futures price, maintain some upside, and even get a portion of the settlement upfront if cash flow is an issue.
- A Basis contract can lock a good local basis level, while allowing the futures price to continue to rise. If the cash price exceeds your revenue expectations, it’s also fine to sell some of your production on the spot. If you were planning to sell 200 bushels at $3.50, selling 190 bushels at $3.70 will still meet your goals.
- The Price Point™ contract is a more automatic way to capture upside. You select a price level, and if the market average goes higher during the contract period, you automatically get the difference added to your contract.
In the end, Rosenmeyer says, “Maybe I’d put a little bit in each bucket—using a mixture of different kinds of contracts, along with cash sales, and transfer some risks in that way.”
Get a good estimate of your insurance payout.
If your crop was impacted by the dry weather or the windstorm, you may have an indemnity payment coming your way. But be aware that rising market prices can impact your payout. Estimate your guarantee accurately to make smart marketing decisions on your harvested bushels.
“I have (a certain number of) bushels that I’m protected on at a certain price,” explains Wiggins. “When I get into fall, I start to know the yield component and the price component—and that forms the revenue picture.”
A key factor in insurance indemnity will be the harvest price determined over the month of October, which uses the November futures for soybeans and the December futures for corn, respectively. If those prices are higher than the spring guarantee set in February, your indemnity payment could decline unless it’s offset by a significant yield loss.
Rosenmeyer recommends sitting down and putting all the estimated numbers together – indemnity payment, number of bushels and current prices – to help inform and make grain marketing decisions.
Crop risk specialists are ready to help you reassess your marketing plan in light of a changing market and your revenue protection policy. To help make sound decisions this year, or plan for the future, contact us today.
ADM is providing this communication for informational purposes, and it is not a solicitation or offer to purchase or sell commodities. The recommendations in this communication do not take into account any particular individual’s or company’s objectives or needs, which should be considered before engaging in any commodity transactions based on these recommendations. The sources for the information and recommendations in this communication are believed to be reliable, but ADM does not warrant or guarantee the accuracy of the information or recommendations. ADM or its affiliates may hold or take positions for their own accounts that are different from the positions recommended in this communication. The information and recommendations in this communication are subject to change without notice.