Melvin Brees
Farm Management Specialist
University of Missouri Extension

 

 

 

Decisive Marketing

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Please send your comments and send suggestions to Melvin Brees, Farm Management Specialist, University of Missouri Extension, #1 Courthouse Square,  Fayette, MO 65248, call 660-248-2272, or send messages by e-mail to: breesm@missouri.edu.
December 1, 2000

It’s Not Just Price

Grain prices have been at low levels for more than two years. Thursday’s (11-30-00) Central Missouri cash bids were corn $1.72- $1.74, soybeans $4.67- $4.68 and wheat $1.98- $2.06—all very low when compared to the last twenty-five years. Most believe that the above prices are not profitable, but it’s not just price that determines success or even business survival.

Prices may be low, but they aren’t flat. While price rallies have been limited, they have occurred—offering the opportunity to avoid selling at the "lows." In addition, very weak harvest time basis has strengthened twenty-cents or more following harvest for both corn and soybeans the past two years. Capturing these early or mid-winter basis gains and limited price rallies has offered storage profits in both years.

The market loan program or associated loan deficiency payment (LDP) enhances market price. National loan corn loan price of $1.89 and $5.26 for soybeans offers net price opportunities well above the low market prices. The LDP may offer the opportunity to enhance price even more. For example, during harvest soybean LDPs of $1.00 or more were available. Producers who claimed these LDPs now have the opportunity to net about $5.60 for soybeans (current cash bid plus $1.00 LDP), well above market price and significantly more than the loan price!

"Freedom-to-farm" or Agriculture Market Transition Payments (AMTA) payments also add to net income. In addition to the set payments, government response to low prices has resulted in a "second AMTA" or Market Loss payment along with an Oilseed payment. While not tied to the planted crop or actual production, these payments add to the "bottom line."

Yield is important. This year’s above average corn yields, for most of Missouri, helps offset below average prices. The LDP is available for all production. The extra bushels per acre and the LDP on these bushels may result in respectable revenue per acre in spite of the low prices.

Low prices are a problem, but profitability is more than price. All risks and resources must be managed. It requires production and financial management, understanding of government loan program alternatives and marketing skills. The "Freedom-to-Farm" government program has been cussed and discussed; yet its "transition payments" represents a substantial source of net farm income. Weather and production practices impact yields and net revenue. Capturing basis gain and selling price rallies avoids market lows. If these skills are mastered and the risks managed, as several producers have demonstrated, profits may still be possible. --Melvin


University of Missouri ExtensionDecisive Marketing - December 1, 2000
http://outreach.missouri.edu/agconnection/DCT/DM001201.html -- Revised: April 20, 2004
breesm@missouri.edu