Volatile corn?

FARGO, N.D. — With 20 percent to 30 percent of last year’s corn crop still in the fields in North Dakota, many farmers are imagining whether they’ll be harvesting and planting at the same time.

Volatility — in weather, agronomy and marketing — is the overriding theme these days and was the linking between several topics at the annual CornVention in Fargo, put on by the North Dakota Corn Growers Association.

Weather

Leon Osborne, president of Meridian Environmental Technology Inc. of Grand Forks, N.D., says the snowpack is halfway between levels preceding the 1997 and 2009 floods in the Red River Valley, which indicates a high probability of flooding. Osborn predicts a cooler-than-normal spring during planting time, but a July and August that is warmer than last year. Farmers may live with weather volatility more similar to the 1800s than a relatively calm period from the 1910s to the 1970s.

Marketing

Mark Gold, managing partner in Top Third Marketing of Chicago, focused on market volatility, urging farmers to invest more time in their marketing chores. He says too many farmers have been told that if they buy Revenue Assurance and Crop Revenue Coverage insurance, they don’t need to do as much marketing.

“You could have had $6.50 per bushel on ’09 corn, and what was your average? $4.04? You left $2.50 on the table by assuming that the RA and the CRC was your marketing tool,” Gold says. “What we find with RA and CRC is that it gives you about 40 (percent) to 45 percent more marketing opportunities every year.

“On Oct. 1, 2009, December corn was at $3 a bushel. Virtually every analyst in the country said we were looking at a crop of 13 billion bushels plus. The charts looked terrible. We were heading into harvest.”

At the time, many analysts were projecting corn prices of less than $2.50 per bushel.

“Well, we didn’t know corn was going to go to $2.20 or $4.20,” Gold says, “but what we did know is that you have $4.04 price there, and you’ve got December corn at $3, if corn went to $4 a bushel, you left a huge insurance payment on the table.”

So Gold advised his clients buy $3.20 corn call option for 12 cents a bushel. Those corn calls ended up being worth 70 to 80 cents a bushel to help offset what they were losing on those insurance payments.

Gold says farmers will live with more risk in 2010 than they had in 2009. Land costs are as high or higher than last year. The “basis” difference between local and terminal markets is wide. A lot of corn is out of condition or going out of condition. High-moisture, low-test weight corn is an issue.

The corn carry-out is estimated at 1.7 billion that we know about, but Gold says, “We don’t know — and I don’t think we’re going to know more on March 10 when we get the next government report comes out.

“We do know that, right now, the estimates are 300 million to 500 million bushels of corn may have to come to market in the next six weeks,” he says. “Because as these temperatures warm up we don’t know how bad this corn condition is in the bin. We know that it’s going to deteriorate very rapidly as soon as start getting warmer.

“What’s going to happen if we dump 300 (million) to 500 million bushels of corn on it in the next eight weeks? Certainly we can look at lower prices. Ultimately, that could be friendly to the corn market but certainly it presents a risk out there.”

Gold says farmers spend an enormous amount of time on production, but that’s only half of the equation to get to revenue.

“We want farmers to use long options where they buy the options and don’t encounter margin calls, only make a few trades a year, don’t get chased in and out of the market with the margin calls,” he says. “And most important, we don’t want them to be speculators” trying to outguess the market.

Marketing is “about a 10-year program really,” and in seven or eight out of every 10 years since World War II, grain markets have had a tendency to go down.

“We feel that in those seven or eight years, if we can keep a guy profitable, his head above water, in position to maybe expand a little, not have stress in his life, keep on good relationship with his ag lender, that’s great. But in those two out of 10 years where there are good years, that’s when we really want to capitalize on that and put the kids through college. Have the wedding for the daughter. Pay off all the equipment, those kinds of things.”

Risk is out there, but Gold says that’s not all bad.

“Volatility is the farmer’s friend,” he says. “It gives us opportunities to take advantage of those things that will happen in a market. We’re hoping the volatility continues. If you want to get a flat price, go to Russia and get a flat price. Or China. We don’t want that in the United States. We want volatility, capitalism and the opportunity to take advantage of those things.”

Gold estimates that only 5 percent to 10 percent farmers have legitimate marketing plans in place. Of those who do, most work with a broker who advises them on his or her expertise in predicting the market. Gold says he advises “put” options that charge a premium to protect a farmer against price drops, but with upside potential. He likens it to life insurance, where the buyer always wants to forgo the premium.

Production

On the production side, the CornVention featured John McGillicuddy, an Iowa agronomist with McGillicuddy Corrigan Agronomics. McGillicuddy says farmers have had two cold wet springs in a row, and “now we’re afraid not to bet on the third one.”

The two big issues this year are how to change nutrient management and residue management to overcome the cold and wet.

“There are five nutrients we struggle to provide when the ground is really cool and really damp and soil tests aren’t a good guide,” McGillicuddy says.

Most of these farms test just fine, but there’s an availability issue triggered by the coldness or wetness or combination. So we look at, is the nutrient we’re placing (water-) soluble? Is it in the right place to make sure the early need is covered? Usually it’s small amounts and it’s more location and formulation than it is how much we put on. All we need to do is make sure it’s well fed until the ground warms up.”

Residue reduces temperature and can tie up nitrogen. Depending on if it’s corn following wheat or corn following corn, there can be some auto-toxic issues. Chewing up residue to get it to break down or “just moving it out of the way” are the primary countermoves for farmers.

McGillicuddy says that while there may be some discouragement about corn in the region, that “increases the opportunity for the person who stays with it and manages the details.” He says good management pays a bigger dividend in difficult times than it does in good times.

While farmers try to peer through the windshield at the crop that is ahead, too many this year have to keep an eye on the crop in their rear-view mirror.

Tom Lilja, executive director of the corn growers, says he’s heard of a few farmers who are trying to pick corn in February. He’s heard one farmer say that the moisture content in a “manageable level,” ranging from the low- to the high-20 percent range.

Conditions seem specific to hybrids that were planted.

“Day lengths are fooling guys,” Lilja says of the varieties. “Some of the 80-day (maturity) stuff is wetter than the 85-day stuff.”

On positive side, the association this year scored well by establishing North Dakota’s subsidy for blender pumps as a way of increasing the use of ethanol for motorists with flex-fuel vehicles. The state program puts $5,000 toward each blender pump from the Department of Commerce and another $2,500 from the corn growers. Since its unveiling in October, the Department of Commerce has received 40 applications.

“If a station has some aging fuel pumps now is an opportune time to take advantage,” he says.

Flex-fuel vehicles that can use ethanol blends at higher than 10 percent have increased from 29,000 last year to about 41,000, he says.

Tags: corn, crops, agriculture, farm