Weekly Hedging Update

Would you not agree that corn and soybean farming is a function of new technology?  Utilizing the latest in agronomy, equipment computerization and GPS, land management, and other factors to maximize yield is part and parcel of your business.   When it comes to marketing, why continue to use processes that have been around for years?

The Economic Research Service of the USDA just released a report on Farm Use of Futures, Options, and Marketing Contracts.  This from the report:

What Did the Study Find?

  • In 2016, more than 156,000 farms used marketing contracts and over 47,000 farms  used futures or options contracts to hedge price risks. Farmers used futures and options contracts across a range of commodities, with corn and soybeans accounting for the bulk of farmer use. These commodities are the primary focus of this report.
  • While just over 10 percent of corn and soybean farmers traded in futures contracts, those who did covered a substantial fraction (over 40 percent) of their production. Similarly, while only 20–25 percent of corn and soybean farmers used marketing contracts, those who did covered over 40 percent of their production with marketing contracts.
  • However, few of them (6 percent of corn farms and 8 percent of soybean farms that used futures) hedged all their production through the futures market.
  • Farmers often use a portfolio of risk management tools. Those who use marketing contracts are much more likely to use futures and options than farmers who do not use marketing contracts. They are also more likely to invest in on-farm storage of their crops, which facilitates their ability to vary marketing volumes over time.
  • Agricultural futures and options are used most often by larger corn and soybean farms as a means of hedging against potential fluctuations in price. Farm operator age and education are also associated with futures and options use. Nearly 18 percent of college-educated corn and soybean farmers used futures, as did nearly 25 percent of operators who were 35 or younger. Farms with debt are also more likely to use derivatives than farms without debt: among all farms, only 10 percent used futures as compared with over 15 percent for those with debt.

Just reading over these 5 bullet points, one could say, yes, maybe there are better ways to skin this marketing hide, but it all seems so complex, why bother.  The fact is the advent of computers allows us to quantify a decision on what to do before you act on that decision.  What we do at Heartland is to project what your revenue will be long before you fire up the combine.  Then if you do not like what will happen to your revenue should prices fall, we can take these instruments the report is talking about and show you how they work to protect your revenue.

We do not offer a one size fits all hedging recommendation.  We work with you to identify your needs.  Whether you farm 100 acres or 10,000 acres, we can work with you to build your marketing plan. 

You can view this report here.