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FARMERS' CORNER | |||
| "To Help The Producer Sell Better" | June 1996 1996 Number 5 |
|
FARMERS' CORNER | |||
| "To Help The Producer Sell Better" | June 1996 1996 Number 5 |
"Experience is a hard teacher because she gives the test first, the lesson afterwards." - Vernon Sanders Law
We have been presented with a rare opportunity this marketing season. Prices have rallied to levels they haven't been to in years. So, what are you going to do to take advantage of it? This is a question every farmer should ask themselves. After all, it is the decisions you make in times like these that can have the greatest impact on your marketing outcomes in the years to come.
The true test of a good marketer is their ability to make sales during a rally, but not just on part of the production, a successful marketer sells all anticipated bushels, and the real success comes from selling more than one year while prices are high.
It is the vision to look ahead and recognize opportunities to sell future crops that sets the best marketers apart. Have you looked at the opportunities that are available for 1997? Prices for next year are profitable for all crops.
The typical reaction during a rally is to forward contract some bushels, then as the market moves higher, regret that action and sell no more. Whereas, a good marketer views higher prices as an opportunity . . . the opportunity to make more profitable sales for the next year and the next.
Consider your own marketing habits. Have you been able to maintain your focus on profit during the rally? Have you taken advantage of the opportunities to make profitable sales for 1996 and 1997? Finally, when the rally is over, will you be able to say you made the most of your opportunities?
TIP FOR SUCCESSFUL MARKETING
During a rally look for opportunities to sell not only this year's crop but also next year's crop at profitable levels.
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We are fortunate in that we know what grain is worth for more than one crop year. We have prices available for the 1996 and 1997 crops. (Soon we will also have 1998 prices.)
Few industries are offered this privilege of knowing what their products are worth so far in advance, much less given the opportunity to make profitable sales.
The availability of forward crop prices has expanded the scope of farm marketing. Instead of being limited to a few months, or at most a year, to market our crops, we can sell two and three years in advance of delivery. This not only gives us added control over our marketing decisions but can also provide us with more occasions to sell at a profit.
When looking for an opportunity to sell more than one year, it is important to understand, that it's not unusual for the prices for each year to be different. The reason for this is simple; each crop year stands on its own and is valued as the result of different factors.
For example, there may be problems with the current crop which results in its trading at a higher price than the second and third years. These differences are to be expected and, in fact, reflect the reality of the market.
The advantage of having prices available for more than one crop year is the opportunities that come when the market rallies. Higher prices caused by production problems with the current crop may create an opportunity to sell second and third year crops. Although the price is likely to be lower than the current year, a rally can move prices for second and third years crops to profitable levels that may not otherwise be available. It is circumstances like these that gives us the opportunity to lock in profits for more than one year. It is important not to let price differences from one crop to the next keep you from making a profitable sale.
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The marketplace is extremely efficient in finding a fair and marketable price for grain. This goes for all crop years. The market recognizes the differences in crops and values each year accordingly. If there are weather problems and stress on the current crop, these factors may result in higher prices. On the other hand, since the second and third year crops are not planted, such a high price may not be justified for them. The bottom line is, the natural forces of the market determine a fair price for each crop year.
We must all accept the fact that the market knows the value of grain and make our marketing decisions accordingly. There are no short-cuts or ways to fool the market into thinking anything else. In marketing, this simply means accepting prices for what they are. We have to evaluate each year separately based on profitability and make the decision to sell when the price for that crop reaches a specific profit goal. Trying to make the price of grain into something it's not through other means, such as spread speculation, is just plain risky.
MARKET FACTS
#1 The marketplace finds the true and fair price of grain.
#2 Differences in the price from crop to crop should not enter into disciplined selling decisions.
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Getting Results Taking advantage of the opportunity to sell crops for more than one year is quite simple. All you need to do is to set a goal and sell when the appropriate crop year reaches your desired profit. Sales for each year will likely occur at different times, but that is to be expected considering the differences in the prices from crop to crop. The objective is to simply sell when that crop year is profitable, no matter what the price is for other years.
If you set a goal and stick with it, you'll consistently sell your crops at a good profit year after year. What better results could you ask for?
A word of encouragement: Don't let the differences in prices from crop to crop deter you from your goal of selling at a profit. Just because the price for this year's crop is higher, doesn't mean that next year's price is not profitable. In fact, it may turn out to be the best opportunity you'll ever get to sell.
TIP FOR SUCCESSFUL MARKETING
Evaluate each crop year individually and sell when your profit goal is achieved.
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1996 As you are well aware, current new crop prices are at very profitable levels. Now that planting is in progress, you should have a good idea of your anticipated production. Use this opportunity to make sales of any additional bushels you have not yet sold.
1997 The rally has not only provided high prices for the 1996 crop but has also created some good opportunities for the 1997 crops. Now is the time to evaluate these prices and take advantage of the rally to make profitable sales for next year.
1998 When 1998 prices become available, be prepared to take advantage of an opportunity to sell your '98 crop at a profit.
The following Profit-at-a-Glance examples show the profit potential for the '96 and '97 crops. Pencil in your own cost-of-production, yield and profit goals to see what kind of return you can expect.
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Opportunities for increasing farm income have never been better. Profitable prices are available for all crops while the outlook for increased production is good. When was the last time you could sell corn for $3.00, beans at $7.00 and wheat above $5.00? At the same time, the government farm program allows for thousands of acres to be returned to production! These are ideal circumstances for marketing.
Rarely will you get the chance to sell at such profitable levels and plant more acres. This is one opportunity that you can't afford to let pass by!
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We have one of the most efficient methods of pricing grain in the world. Our markets represent and serve everyone in the ag-industry. From the largest grain company to the smallest country elevator, from the grain producer to the grain user, everyone is treated equally.
The market demands and deserves respect. It seeks a fair and honest price for grain without exception. No one is above the market or can second-guess its authority. It knows what grain is worth and values it justly. The market can't be fooled.
If you learn only one lesson about marketing, learn to respect the markets.
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The new farm bill provides for a seven year contract beginning in 1996 through 2002. Producers will have ONLY ONE OPPORTUNITY to enroll in the Production Flexibility Contract. Producers who miss this one time signup will not be eligible to enroll the farm at the later date, except when a CRP contract expires.
Farms with a planting history of wheat, corn, grain sorghum, barley, oats, rice, or cotton are eligible. Producers may enroll all or part of the farm acreage bases. Current farm lease agreements are required. SIGNUP PERIOD IS MAY 20, 1996 THROUGH JULY 12, 1996.
PAYMENTS
1996 First payment of 50% within 30 days after contract approved. Final 1996 payment no later than September 30,1996.
1997-2002 50% advance available either on December 15th or January 15 of fiscal year. The remaining 50% will be paid no later than September 30th of each year.
In 1996 a producer or owner will have the opportunity to get all of 1996 payment and 50% of the 1997 payment if so desired.
When final 1996 payments are made, participating producers of wheat, barley, oats and upland cotton will receive additional payment, based on the amount of the 1995 deficiency payments required to be repaid. Also, participating producers of these commodities who have not repaid their unearned 1995 crop deficiency payments will have the amount deducted from their final 1996 payments. These overpayments occurred because advance payments for the 1995 crops must be repaid since market prices have increased above the respective established target prices. For participating corn and grain sorghum producers, the additional payment and deduction of unearned 1995 deficiency payments will be made when producers receive their advance payments in fiscal year 1997.
The contract commodity payment rates announced are only estimated rates based on an assumed producer participation rate of 100%. If producer participation is less than 100% then the payments will be higher.
The following table gives estimated contract commodity payment rates and the estimated payment rates based on the amount of the 1995 deficiency payments required to be repaid for 1996-2002.
(Cents per bushel unless otherwise noted)
| Commodity | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 |
| Wheat | .87 | .61 | .65 | .63 | .57 | .46 | .45 |
| Corn | .24 | .46 | .36 | .35 | .32 | .26 | .25 |
| Grain Sorghum | .31 | .50 | .42 | .40 | .37 | .30 | .29 |
| Barley | .32 | .25 | .26 | .24 | .22 | .18 | .17 |
| Oats | .03 | .03 | .03 | .03 | .03 | .02 | .02 |
| Upland Cotton (cents/lb) | 9.06 | 7.40 | 7.87 | 7.60 | 6.69 | 5.64 | 5.47 |
| Rice ($/cwt) | 2.78 | 2.74 | 2.94 | 2.85 | 2.61 | 2.11 | 2.04 |
This table includes the following estimated payment rates based on the amount of the 1995 deficiency payments required to be repaid: wheat - $0.25/bu., corn -$0.13/bu., gr. sorghum - $0.11/bu., barley - $0.09/bu., oats - $0.01/bu.., upland cotton - $1.31cents per pound, not applicable to rice.
This next table shows the breakdown of 1996 payments and how 1995 overpayments are dealt with:
| Crop | Advance Payment | Final Payment | Payment of 1995 Crop Refund | Total Payment | Deficiency Payment | Total Net Refund |
| Wheat | .31 | .31 | .25 | .87 | -.35 | .52 |
| Corn | .12 | .12 | .00 | .24 | .00 | .24 |
| Sorghum | .155 | .155 | .00 | .31 | .00 | .31 |
| Barley | .115 | .115 | .09 | .32 | -.20 | .12 |
| Oats | .01 | .01 | .01 | .03 | -.05 | -.02 |
| Up Cotton | 3.875 | 3.875 | 1.31 | 9.06 | -1.85 | 7.21 |
| Rice | 1.39 | 1.39 | 0.00 | 2.78 | 0.00 | 2.78 |
Estimated payment rates are not guaranteed. They are estimates of the expected minimum rates, but they will likely be different than the actual rates because of the final participation per cent.
We encourage you to take advantage of this program. Remember, it is only a one time signup for the total seven years. If you miss it you will not have another chance to participate.