AUDIO: Steve Johnson, farm and agriculture business management specialist at ISU
As farmers prepare for the 2018 crop season, a farm management specialist encourages growers to incorporate time and price into their crop marketing plan.
Steve Johnson is a farm and agriculture business management specialist at Iowa State University. Johnson says farmers should incorporate time into their crop marketing plan. Johnson’s reasoning – futures markets show seasonal trends.
“Corn seasonals tend for corn futures, old and new crop, to peak in mid-April to mid-July. That’s happened every year for the last five years. You begin to understand, ‘Why do corn futures peak in the spring and early summer months?’ Eighty-five percent of corn is produced in the northern hemisphere. It’s the greatest uncertainty of production. It’s not the reality, it’s the perception of limited production that allows corn futures to rally,” Johnson said.
Johnson adds soybean futures show similar trends later in the year.
“Soybean prices tend to peak in June/July with the uncertainty of northern hemisphere production”, Johnson said. “Over fifty-percent of soybeans are produced in the southern hemisphere, so we get another window in soybeans. That window tends to be the middle of November to the middle of February.”
Johnson also says farmers incorporate price into their crop marketing plan. He suggests farmers incorporate price by separating futures prices from basis prices.
“I think farmers (need) to be adept in at least capturing the futures price rally, not necessarily the basis” Johnson said “Separating futures from basis is really critical. When future prices are the highest, usually in the spring and early summer months, the basis is wide. At least locking in futures on new crop bushels and then waiting for better basis after harvest using on-farm storage.”
Johnson says separating futures from basis prices allows for an extra 20 to 50 cents a year. He suggests farmers incorporate price by using a variety of marketing tools as well.
“That includes both basis contracts, minimum price contracts for old crop marketing, so we can maintain ownership via the Board. For new crop marketing, hedges, hedge-to-arrive contracts to our processors and maybe put options that put floors under the market, but necessarily require delivery of those bushels,” Johnson said.
Johnson spoke to farmers at Farm Credit Services of America’s GrowingOn® event in Pella Friday.