With planting preparations underway, farmers are urged not to take their eyes off the marketing “prize.”

This time of the year, farmers focus their attention on preparing a planter, making last-minute tractor repairs, and double-checking seed supplies for their spring crops. Unfortunately, too many farmers fail to keep one eye on the markets, missing a good opportunity to price some crop, one marketing adviser said.

John Roach, Roach Ag Marketing Ltd, told Agriculture Online that so many farmers set aside marketing their crop as they go about their business of planting, they frequently miss marketing opportunities . “With nobody paying attention, the market adjusts itself to get people’s attention. The way they [grain buyers] do that is by pushing bids higher in order to fill nearby delivery slots,” Roach said.

Though spring just started, Roach said there already has been some evidence of this pushing of bids for corn.

In the last week, as corn futures prices came under pressure, farmers watched their bids drop off a dime and told themselves they didn’t want to sell. So, in order to get the grain, buyers have had to bid up to get the grain to move, Roach said.

Another scenario that farmers get themselves into during this time of the year is being oversold before July and unable to take advantage of a weather market. Because of this year’s market factors, Roach is uncharacteristically suggesting farmers consider buying call options for future sales.

“With the growing demand on ethanol, and the fund investment money in the market, these are things that could give us an explosive market,” Roach said.

He added, “We don’t want farmers to be sold heavier than normal in this kind of environment, unless they are willing to spend $0.12-$0.15 per bushel on a call option that will allow them the ability to make a sell in the midst of a weather scare.”

A prime example of this occurred last year in Illinois, Roach said. “Some farmers who purchased calls in the spring were able to make some very attractive cash grain sales in the midst of a weather problem in their area.”

Separately, in a daily market newsletter on Wednesday, Roach addressed his thoughts on the current activity of the corn basis.

Though it was up 3 cents on average in Iowa, Illinois, and Indiana, this past week, Roach sees the still poor corn basis weakening further.

“I think the basis will weaken again when futures stage their next rally so use stronger basis values now to fix the basis on last year’s grain stored in the bin,” Roach said. ” If basis approaches normal for fall delivered grain, fix the basis on some of your planned new crop sales as well. There is so much grain to be sold that basis values could be as weak as they were last year. If we have a good crop, storage is going to be tight. Plan on using the next sell signal to fix (or sell) the Chicago futures component of your cash bid for old and new crop.”

For those farmers who feel basis gaps are so wide that the system is broken, Roach disagrees. “The problem is that yields have grown faster than the available storage space and I fear that the problem will be repeated this fall. You cannot put five quarts of anything into a gallon jug. If you want someone to store the extra quart in a leaky can, he will not give you very much money for that extra quart because there is too much risk.”

Many elevators who stored the monster 2004 crop on the ground took terrible losses on their piles, Roach said. “Many of those elevators refused to take that risk in 2005 and discounted their basis to stem the flow of sales or to get enough money to cover the risk on corn stored outside. Farmers could have left the 2005 crop in the field until the glut passed (and basis improved) or filled their machine shed but as you know that meant taking risk too.”

Roach said that the solution to battling a bad basis is on-farm storage.

“Farmers can store the crop and not get caught the next time basis goes to 58 cents. Another solution is to use the tools available from most buyers Basis contracts and hedge-to-arrive contracts allow you to fix the futures and basis at different times,” Roach said.

On Wednesday, the May CBOT corn futures prices lost 1 cent to $2.22 1/2 a bushel and July fell 1 cent to $2.33 1/2.

By Mike McGinnis
Agriculture Online Markets Editor

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