Farmers struggle with selling decisionsFARGO — Deciding whether to sell some of their crop before harvest is always one of farmers’ toughest tasks.
By: Jonathan Knutson, The Forum
FARGO — Deciding whether to sell some of their crop before harvest is always one of farmers’ toughest tasks.
The job is even harder this year.
On one hand, strong commodity prices are encouraging early sales of crops to be harvested this fall.
But moisture shortages, especially in western North Dakota, threaten this year’s crop and make farmers reluctant to sell more grain than they might harvest.
“Guys have a lot to think about,” said Pat Carpentier, McLean County Extension agent and adviser to the Garrison-based Roundtable Marketing Club.
Ideally, farmers could lock in profits by selling a big chunk of their 2008 crop at current prices, he said.
“But it’s so dry here. We just can’t say what kind of crop we’ll have,” he said.
Though the region’s growing season is just getting started, conditions aren’t promising.
Virtually all of North Dakota and northwestern Minnesota are short of moisture, according to the U.S. Drought Monitor, a Lincoln, Neb.-based project involving academics and state and national experts.
A little background:
Farmers know in the spring how much they’ve spent on expenses such as seed, fuel and fertilizer.
That allows them to calculate the price they’ll need to make a profit on their crop.
When prices are at profitable levels – which is the case now with most area agricultural commodities – marketing experts advise selling some of the still-to-be harvested crop to guarantee a profit on the portion sold.
How much grain will farmers sell in advance of harvest?
The answer depends in part on growing conditions.
Farmers don’t want to sell more grain than they reasonably can expect to harvest. If they come up short, they’ll need to buy grain – possibly at a higher price – to make up the difference.
So farmers typically adjust their advance sales to reflect crop prospects.
Say a farmer averages 40 bushels of wheat per acre. Some years he gets more, other years he gets less.
In years that promise an average or better yield, the farmer might sell the equivalent of, say, 20 or 30 bushels per acre before harvest.
In years that threaten to produce a lower-than-average yield, the hypothetical farmer might sell the equivalent of 10 or 15 bushels per acre before harvest.
Weather concerns aren’t the only reason producers are reluctant to sell early.
There’s also the possibility that prices will go up.
Last year, for instance, many area farmers – accustomed to years of wheat at $3 to $4 per bushel – gladly locked in profits by selling wheat in the late spring and early summer for $5 to $6 per bushel.
That meant they had fewer bushels to sell later in the year when wheat soared to more than $10 per bushel.
Farmers who sold grain early at profitable prices last year have no reason to be dismayed, said Bruce Hagen, an Ayr farmer and Ayr Marketing Club member.
Still, watching prices soar last fall might make some farmers less willing to sell grain before harvest this year, Hagen and others say.
Mike Krueger, president of the Money Farm, a grain marketing advisory service in Casselton said his company advised clients this year to consider selling 40 percent to 50 percent of normal production.
There aren’t reliable statistics on how much grain farmers sell prior to harvest, said Edward Usset, grain marketing specialist at the University of Minnesota’s Center for Farm Financial Management in St. Paul.
He wrote the book, “Grain Marketing is Simple (it’s just not easy).”
Farmers set themselves up for disappointment if they try to time grain sales at the highest price, he said.
Farmers should try instead for a good average price over time, always keeping in mind their cost of production, he said.
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