Soybean South

 - MARKETING -

2010 Market Plans

By Melvin Brees

It looks like 2010 will be another challenging year for making marketing decisions. New crop soybean futures prices are well off their early January highs. Soybean prices fell about $1.60 before recovering somewhat in recent trading. November soybeans are near $9.30. Even with a weak harvest time basis, these prices should still offer profitable production returns. Soybean ending stocks of 210 million bushels are below average, but world ending stocks are expected to swell with record production in South America.

Market pricing objectives

It’s usually a good idea to have two market price objectives. First, establish an upside market goal or target for sales if prices move higher. The second is a downside price goal or trap price to trigger sales if prices move lower. The upside price goal should be a reasonable price objective that captures profitable prices.

The price trap is in place to protect or “trap” a minimum profit or breakeven price should lower prices lead to a continued market downtrend. One objective would be to at least capture prices that would be at or above some of the 2010-11 average farm price forecasts. For downside traps, recognize that prices below the early February lows would send a negative price signal that the downtrend is continuing.

How much to sell?

Previous sales, the ability to bear risk of lower prices and cash flow needs are major considerations. If some land is cash rented, especially if it is at a relatively high cash rent, then protecting profits and cash flow on this may be a priority for beginning to make sales. Production risks and the ability to meet delivery requirements on cash contracts also must be considered.

The lowest amount of production in recent years might be a starting point here. Revenue- based crop insurance also provides risk protection for delivery requirements up to the insured level. The amount of grain storage available and how much grain is expected to be delivered at harvest time is another consideration. Spreading sales is an important way to reduce risk, especially in uncertain markets. This is usually accomplished by making sales of predetermined quantities as price targets are met and increasing sales of additional quantities as prices move to higher goals or down to pre-determined price traps.

There are no guarantees, but selling upside price objectives, protecting downside price risk and spreading sales over the next two to five months puts the odds of successful pre-harvest marketing on your side.

Read Melvin Brees’ “Decisive Marketing” in its entirety at www.agebb.missouri.edu.