frontier featured image for steve johnson blog

Seasonal Price Strength: Are you Ready?

Looking for ways to improve your crop marketing strategies? As part of Frontier Farm Credit’s commitment to bringing you financial and business management insights you can use, Steven Johnson from Iowa State University Extension shares his suggestions for marketing strategies with producers.

Click to view an interactive recording of Steve’s presentation. Walk through tips for improving your marketing strategies with interactive text, illustrations and video clips. Follow along with case studies from actual producers that illustrate Johnson’s tips. The material is customizable—you can either choose the sections that are of interest to you or view it start-to-finish.

GrowingOn 2019 course wrap up image

Included in the interactive recording:
Tip 1: Know cost of production, cash-flow needs, breakevens, and profit margin.
Tip 2: Understand seasonal futures price trends.
Tip 3: Track basis patterns.
Tip 4: Link crop insurance to pre-harvest marketing.
Tip 5: Execute a written marketing plan.

Frontier GrowingOn 2019 course wrap up image social media

Farm Finances: How do you compare?

In today’s ag economy, several important measures of farm financial health are front of mind. As agricultural economist David Widmar described, “The check engine light is flashing.” As part of our commitment to bringing you financial and business management insights you can use, Frontier Farm Credit invited Widmar to share his perspective with producers, along with his top management factors.

Click to view an interactive recording of David’s presentation. This interactive learning experience includes text, illustrations and video clips. The material is customizable—you can either choose the sections that are of interest to you or view it start-to-finish.

Frontier GrowingOn 2019 course wrap up imageIncluded in the interactive recording:

  • How did we get here in the ag economy?
  • What has impacted the ag economy?
  • How are other ranchers and farmers doing?
  • What’s the outlook for cattle?
  • What does the global ag economy look like?
  • What management tips should come into focus for 2019?
farmer in the field

New in 2019: Multi-county Enterprise Unit

Farmers now can choose to combine acreage of an insured crop across county lines into a Multi-county Enterprise Unit Endorsement (MCEU). This allows farmers to qualify for the better EU premium rate on land that wasn’t eligible for an EU in the past.

The basics:

  • One county must qualify independently for EU; the other county must not qualify.
  • The land in the combined EU must all have the same elections (insurance plan, coverage level and practice, such as irrigated or nonirrigated).
  • The MCEU doesn’t combine the county crop policies – only all insured acreage of the crop/practice. Separate applications and policies are required for each county.
  • APH yields for each county are not impacted.
  • Premium, guarantee and liability will be calculated separately for each county based on the acres and actuarial documents for that county. But the EU premium discount will be determined by using the total acres in the MCEU.

Don’t wait until the last minute to look into this new option.

Your Frontier Farm Credit crop insurance team has been trained to understand the rules involved. We are ready to help you assess whether the new MCEU would be advantageous to your operation.

Call your local Frontier Farm Credit office or 800.397.3191 for help with this decision today.

grain bin winter

Grain in the bin is not a plan

After the prolonged harvest many producers endured, followed by a scramble to get production reports pulled together, it isn’t surprising if a sigh of relief is the main emotion. But grain in the bin cannot be considered a marketing plan and the job isn’t finished if the grain isn’t priced.

If you don’t have your 2018-crop and a preliminary 2019-crop marketing plan in writing yet, this is a great time to sit down and do it. “Timely marketing of grain was a big delineator of winners and losers in 2018,” noted Tyson Anderson, financial officer, Frontier Farm Credit.

Start with your true and total cost of production, Anderson said, adding that using a computer-based software program or the association’s Magnify accounting program is critical. “Accurate accounting makes it easier to create a marketing plan and pull the trigger on sales when the time is right,” he explained.

Once you have calculated your cost of production and know what price you need to be profitable, there are three factors to consider in marketing old-crop production: futures price “carry,” local basis and the cost of grain ownership.

Separating futures from basis presents an opportunity to improve your price received.

Futures carry

Futures carry is the difference between the price of nearby futures and contracts further into the future: March, May and July. In times of large carryover, it is typical for the market to offer carry, to incentivize elevators and farmers to hold the crop off the market. This year was no exception. By late fall, corn futures carry was 25¢-30¢ from December to July – nearly the full cost of carry, and likely to cover the cost of on-farm stored bushels but not farmer-owned bushels stored commercially.

To capture that carry, farmers would have to hedge their bushels by selling futures in the deferred months or initiate a hedge-to-arrive contract. In either case, basis could be set separately, when it improves.

Basis

Basis is simply the local cash price minus the nearby futures contract. It reflects local supply/demand and can vary by elevator, co-op, processor or river terminal. Basis typically is weakest (and cash price lowest) at harvest, when supplies are ample, and then improves into the new calendar year. Basis appreciation in January and February tends to stall because large volumes of corn need to be moved out of temporary storage and farmers need to sell to meet winter cash flow needs. Then, during the summer, when stocks are drawn down, basis becomes stronger and more erratic until new-crop harvest begins.

five year average corn basis Kansas

five year average soybean basis Kansas

Cost of Storage is not free

Knowing what it costs you to store is critical. Even if your bins are paid off, there is an opportunity cost. The following assumptions are used in the graph below: cash corn at harvest, $3.30/bu. and soybeans, $7.60/bu.; interest at 5% annual percentage rate (APR); on-farm storage cost (bin depreciation, shrink, etc.), 1¢/bu./month; commercial storage charge, 5¢/bu./month. Clearly, these factors will be different based on your circumstances.

As the chart shows, bushels stored on the farm have a better chance of being sold above the cost to hold them than commercially stored bushels.

Note, however, that does not address whether it is possible to sell them for a profit. When the starting price is below cost of production, the ending price could be even more below the cost of production – unless futures prices and/or basis improve.

corn cost of ownership trends 2018

soybeans cost of ownership trends 2018

Spell out your plan

Identify your target price needed to create a positive return. Calculate your cost of ownership for stored bushels and adjust your target price accordingly. Consider creating a line graph like the one above to help assess profitability of storage.

As noted earlier, lock in futures carry – via a HTA contract or futures hedge – when it is available or at least set your target price for a cash sale on seasonal price strength. Historically, corn futures tend to peak seasonally between Easter and mid-July  – a little later for soybeans.

Keep track of your local basis at least weekly and lock in that component when it has improved post-harvest.

Consider using a variety of marketing tools, including basis or minimum price contracts so you can eliminate storage costs and lock in the basis if attractive.

And keep in mind that winter cash sales for cash-flow needs mean you will not be able to capture the futures price carry offered in the deferred contracts. That’s why it’s important to plan ahead.

farmland

Farmland Values Soften Modestly

Farmland values in eastern Kansas softened slightly in the last half of 2018, but remained stable overall.

While benchmark farmland values in eastern Kansas improved throughout 2018, the gain was modest in the last six months of the year.

In the neighboring state of Nebraska, farmland values as a whole declined 1.0 percent in the last half of 2018 and 0.9 for the year. Iowa, which generally is on the leading edge of changes in the real estate market, declined 1.4 percent in the last six months of 2018, but were largely unchanged for the year.

“The softening of the market in the latter half of 2018 wasn’t unexpected and, in fact, it better aligns farmland values to profitability in the grain sector,” said Tim Koch, chief credit officer for Frontier Farm Credit. “The industry continues to be challenged by compressed margins. For producers who rent farmland, softening in the market will help their bottom line.”

Continued pressure on profit margins could lead to additional softening in 2019. However, the same factors that have helped to stabilize the market for the past three years remain in place, including interest rates near historic lows and strong demand for quality land that is in tighter supply.

The chart below reflects changes in farmland values for the benchmark farms that Frontier Farm Credit tracks in eastern Kansas. The number of benchmark farms is noted in parentheses.

STATE Six Month One Year
Kansas (7) 0.7% 2.8%

Cropland in 2018 saw a 0.6 percent increase in value; pasture land gained 5.8 percent in value.

Frontier Farm Credit appraises its benchmark farms twice a year, in January and July. In addition, the cooperative compiles records from farmland sales. The cooperative’s objective in using the benchmark farms is to track real estate values without the influence of changes in land quality on sale prices.

The chart below tracks quarterly changes in actual farm sales:

Kansas Cropland Values 122018