Carl German, Extension Crops Marketing Specialist; clgerman@udel.edu
What is defensive marketing? Defensive marketing is taking the necessary steps to be able to weather the storm given the extreme uncertainty being depicted in the commodities and financial markets for the remainder of the 2008/2009 and 2009/2010 marketing years. Blanket recommendations concerning marketing decisions seldom serve the individual well. However, this cropping season is different from the recent past and from a historical perspective.
During the winter, under more normal conditions, commodity prices (corn, soybeans, and wheat) would have been expected to bounce from price levels that were set in mid-December or even early January. Instead, due to economic conditions in the U.S. and abroad, the most recent low for November soybean futures was posted on March 2nd at $7.89 per bushel. New crop December corn futures, last traded at $3.89 in the overnight e-trading session just 40 cents above the most recent low of $3.49 made in active trading on December 5th. The primary driving force in commodity trading over the last two months has been the fate of the general economy reflected in the Dow Jones Industrial Average. In mid-December, the Dow was trading near 8700, in early January near 8980, and 6760 on March 2nd. The 7099 support level was broken last week, representing a 50% retracement from the 14,200 high. The next level of support for the Dow is at 4600, a 67% retracement from the high. If the Dow heads to the next level of support then we can be assured of a further decline in commodity prices.
2009/2010 Marketing Strategy
1. Consider buying crop insurance. You must have crop insurance in one form or another to be eligible for SURE (information on SURE is available at your FSA office). Crop insurance is not a panacea that can fit everyone’s needs on every farm and every crop. However, it can prove to be very beneficial for some crops on some farms, particularly when proven yields on the farm are well above the county or state average yields or when a crop disaster occurs. For CRC and GRIP crop insurance policies the price guarantees are now set at $4.04 per bushel for corn and $8.80 per bushel for soybeans. The deadline for crop insurance is March 16th.
2. Visit your FSA Office. Make sure that everything gets done that needs to be given attention. Consider entering FSA’s Acre program or opt to stay in the old DCP program.
3. Watch for opportunities to cover unprotected intended production via forward cash contracts or the purchase of put options. Remember, crops covered by CRC present one with an opportunity to price those crops at higher levels than the price guarantees. In other words the CRC covered crops place a price floor under the insured portion of your crop.
4. Bear in mind that every bushel of your intended production must be marketed or sold. Do not over contract intended production.
5. Plan to store a portion of your 2009 crop production. The crop size for the 2009 growing season will determine whether pricing opportunities prevail this summer and fall. If a huge crop is grown in the U.S. this year, coupled with a contracting economy, we could see commodity prices moving to the loan by harvest. Current circumstances require that one prepares for the worst of outcomes and hopes for the best.
For technical assistance on making grain marketing decisions contact Carl L. German, Extension Crops Marketing Specialist.