‘March Madness’ in the commodity markets
March 27, 2014
Well, this month is drawing to a close and "March Madness" has certainly provided many surprises. For many of you, that meant basketball and brackets at both the state and collegiate levels. For me, it means the "madness" of wild swings in commodity prices is about to start all over again.
Over the last six to eight weeks, the grain and livestock markets have rallied higher with the hog complex exhibiting all-time highs. The Quarterly Hog & Pig Report was will be published by press time and may shed some light on the effects of the devastating PED virus. The grain markets will also be influenced by the USDA report on March Planting Intentions and Quarterly Stocks which will be released on March 31, 2014. This report often includes some unexpected information which can produce some market-moving price swings much like what an "upset win" would do to your predicted outcomes in the "Sweet Sixteen" bracket.
I believe now is a prime time to establish a risk management plan for 2014 or to re-evaluate your existing one. The first step in developing a game-plan is to calculate the break-even prices for the crops you intend to plant. I know most producers can quickly estimate the direct input costs such as cash rent, seed, fertilizer, chemical, and crop insurance but that doesn't equal the break-even price. Calculating the indirect costs for your farm requires a more detailed analysis of all overhead expenses and capital investments in order to arrive at a sound number. Once the estimated break-even prices have been established, the next step is to decide what level of crop insurance coverage is appropriate for your operation. I think these two initial steps are the most critical elements in creating a risk management plan. In fact, some producers may only need to complete this two-step process while others will need to utilize additional marketing tools to achieve their goals
If you are struggling to get your financial records to this level of detail or need assistance with other areas of farm management practices, I would highly encourage you to enroll in our program. We specialize in helping producers develop better financial records which should result in the ability to make good business decisions and achieve a higher level of profitability. Please check us out on our web-site: http://www.SDCFRM.com or call me at 605-299-6760 for more information.