How is your marketing plan shaping up? Is it giving you an award-winning performance? Or is it performing somewhere between a Wall Street stock portfolio and the elementary school beginner’s band? Marketing plans are documents than need to be regularly consulted, but also require preventative maintenance, just like your new combine. They need to be fine tuned periodically and implemented religiously, not just left covering up a corner of your desk with last year’s calendar. Yes, it is time for that semi-annual sermon on marketing plans.

Now that the guilt of not having, not updating, not implementing a marketing plan has been thrown at your feet, let’s not dwell on the problem, but let’s fix it. And our fixer is Ed Usset, University of Minnesota grain marketing specialist, who has addressed corn, beans, and wheat in the past several days.

Corn
His 2009 pre-harvest sales began last August (2008) with a $6.45 sale. With a recent sale of DEC ’09 corn at $4.58 he is now 75% priced at an average just above $5, which implies a cash price of $4.50-$4.60 at harvest. Happy with that being above his minimum price of $3.95, Usset is now focused on pre-harvest sales for his 2010 crop. (No, it is not in the bin or even planted, but he’s not selling any 2011 or 2012 yet either.)

The first step is cost of production, and fall fertilizer prices are available, and cash rent can be calculated. He is assuming yields will fall near a four year average, and expects that production costs will be $3.60 to $3.70 per bushel. Adding a $20 government payment and deducting a $40 labor and management charge, he’s forecasting a $3.65 minimum pricing objective. His 40¢ harvest basis would give him a $4.05 cash price per bushel and with DEC ’10 futures near the $4.55 level, a sale locks in a 50¢ profit. And he says while you are forward contracting corn, lock in your fertilizer price as well. Usset says price is not a factor, just the estimated margin over input costs.

Soybeans
Usset has also just completed the pre-harvest phase of his soybean sales and has 75% of his crop priced with a weighted average of $11.18 per bushel, still hoping he can price the remaining 25% at a higher price. And he has switched his focus to 2010 soybeans, which are near the $10 mark for NOV ’10. With a 70¢ basis for harvest delivery, he’s starting to price cash beans above $9.30. His estimated cost of production is $8.35 per bushel, which gives him a nearly $1 margin, well above historical records.

Usset urges farmers not to look at the 2007 and 2008 prices and expect them to appear, but look at the margins today’s prices offer and take advantage of them. He’s also quick to recommend against pricing beyond next year because of uncertainties in input prices and even rotational demands. So he has already sold 20% of his 2010 soybean crop, booking an early premium price for beans that will not be planted for another year.

Wheat
Again, Usset is not concerned with the prices offered by the market, but the potential margins he would receive with pre-harvest sales. “As good as those implied margins are in corn and soybeans, they are even better in the world of spring wheat.” Using an average production cost for spring wheat of $4.94 on cash rented ground; Usset is computing a $14 per acre government payment into the equation, along with a $23 charge for labor and management. Using declining costs for fertilizer, he believes 2010 production costs will not be any higher than those for 2009 wheat. With a $5 production cost, he is happy with SEPT ’10 wheat trading at $7.50 per bushel, which would give a $7.10 to $7.20 cash price, which is $2 over production costs.

Summary:
With 2009 corn and soybeans beginning their growing season, and some fields yet to be planted, it may be time to consider marketing the 2010 crop. If costs of production can be computed, and most of those can be estimated within a few percent, many farmers would be well served to compare those production costs to prices offered by the market. Using typical basis levels check the potential margins that cash prices would offer. Unless you are going out of business, pricing a portion of the 2010 crop may offer some early profit opportunity.