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Postmortem analysis isn’t just for TV crime scene shows. Before you sign off on your 2023 marketing plan, find out what worked and what didn’t in your 2022 sales strategy.
The current marketing year doesn’t end until August 31st, but historical averages look to be making solid gains for corn and soybeans. But digging deeper into gains and losses can help identify true risks and rewards.
In fact, 2022 was not a one-size-fits-all year. A long-term Farm Futures study of pre-harvest marketing strategies showed that different growing regions produced different results. And what worked for soy didn’t necessarily work for corn. The main differences affected hedging instruments such as basis, yield and timing of harvest and sale.
of A Farm Futures study tracks the performance of strategies dating back to 1985, when options trading was reopened after a decades-long ban. Strategies include selling using average price contracts, futures/hedge-to-arrivals and options during the main seasonal windows of spring and early summer. The result is that he is benchmarked for cash income in 11 places for corn and 9 places for soybeans.
While this study is hypothetical and not the result of actual trading, according to the USDA Crop Progress report, positions were liquidated when harvests reached their midpoints in each state, with published cash prices and official futures and options payment is used. Hedges covering 100% of expected production were timed for the second week of April, the third week of May and the fourth week of June. The average sales contract period was from his January or March to August before harvest.
winner and loser
Straight futures/HTA performed nearly identically on both corn and soybeans. On average across the three sales windows and sales locations, each generates about 1.5 times the long-term average.
Yield-weighted results were 74 cents per bushel for soybeans and 33 cents for corn. Corn sales using futures/HTA have historically been the most profitable on average, making a profit 71% of the time.
Soybean hedges also tend to be the most profitable, posting profits in 68% of the 38 years studied. However, seasonal soybean sales were not the most profitable for this crop. That honor dropped to an average price contract for the window from March to his August, earning 88 cents a bushel.
Compared to December 2022 corn, the November 2022 soybean futures rally surged through the winter, lasted longer during the growing season, and rebounded more quickly after the July slump. His January-August average contract for soybeans also rose, while corn both fell.
Average price contracts are one way of trying to solve the risk from the extremes of the futures market. Options are another tool that can limit losses in years when prices continue to skyrocket after a sale.
Farm Futures research looks at two methods: buying put options and creating so-called synthetic puts that combine long call options with futures/HTA sales. Calls are bought during periods of seasonal weakness in futures before selling occurs to drive down option prices. Cole’s three strike prices are considered.
Whatever the options tool or price window, both corn and soybeans suffered losses on average in 2022 due to the initial costs of the positions. Higher futures prices raised these upfront premiums, creating headwinds despite a general decline in prices heading into the harvest.
why and why
A closer look at the results reveals that hedge gains from futures positions vary depending on the expected yield sold and when the crop was harvested and the position liquidated.
Areas with early soybean harvests and generally good yields saw higher futures/HTA hedge gains per acre as positions were liquidated when November futures bottomed out in the first week of October. It’s been a lot. Two weeks later, futures rose, hitting hedge gains in states like Missouri, which generated half the gains of Nebraska. It also hit corn hedgers, which yielded the lowest yields per acre in the country.
But profit hedging is only part of the story when considering a marketing postmortem. The combined results of pre-harvest sales and cash value at harvest were a true result of the marketing strategy, with sales from the combine subject to large fluctuations in yield and basis in boom or bust periods.
A double blow of bad news for both corn and soybeans along the Ohio River. Barge freight rates from the lower Cincinnati and lower Ohio to the Gulf of Mexico he hit a record high in October, as lower Mississippi water levels limited the number of barges per tow.
Corn yields were higher than usual, and the late harvest left too much supply and too few barges at a time when export shippers traditionally wanted soybeans to move. Soybean shipments on the river increased during the October harvest, while corn volumes plummeted. As a result, Cincinnati corn prices were 53 cents below average.
Yields in Illinois were even better, but central Illinois benchmark standards were 8 cents higher than average thanks to rail and ethanol demand. With a yield of $1,451 per acre, he more than doubled the average, the best performance of any site surveyed.
Corn farms on the dried up Southwest Plains have suffered the worst. Short supply kept the basis more than a dollar stronger than the average, but low yields made cash sales revenues unmatched elsewhere in the country.
Southwestern Kansas was the worst-performing soybean region, partly because of disappointing yields. Middle Illinois once again led the flock, with a better than average base and yield, producing harvest income nearly 1.5 times the long-term average.
Central Illinois also leads the pack in hedge gains and cash sales combined, producing 52% more soybeans and 42% more corn than the Southwest Plains average.
All of these factors help explain some of the post-mortem findings on your farm’s marketing efforts and help uncover changes for 2023. Remember that losing a hedge does not mean failure. It is the nature of managing risk in pre-harvest sales. The goal is to make a profit. Thanks to the good price, most producers are likely to report it on Schedule F.
View the full results of the survey organized by year and location.
2022 Corn Results
1985-2022 Corn Results
yearly corn results
2022 soybean results
1985-2022 Soy Results
Annual performance of soybeans
Central Illinois: corn | | soy
Central Indiana: corn | | soy
Cincinnati: corn | | soy
Denver: corn
Evansville: corn
Garden City, Kansas: corn | | soy
Kansas City: corn | | soy
Minneapolis: corn | | soy
North Central Iowa: corn | | soy
Omaha: corn
Toledo: corn | | soy
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