March madness in the commodity markets
April 1, 2013
Well, it's that time of year again – March Madness. For many of you, that means 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.
We have already been given a hint of what the USDA is projecting for the upcoming crop year when they released their data from the Agricultural Outlook Forum on Feb. 21-22, 2013. This news has already been greatly debated by numerous private marketing firms. The next USDA report on the horizon will be the March Planting Intentions and Quarterly Stocks report to be released on March 28, 2013. This report quite often includes some unexpected information which can produce some wild price swings much like what an "upset win" would do to your predictions in the basketball brackets.
If you have not already done so, it's not too late to establish a risk management plan for 2013. 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. Both direct and indirect costs are needed in order to calculate the break-even price.
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. Your agent should be able to help you find the right product to meet your needs. 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 a higher level of detail or need assistance with other areas of farm management practices, I strongly encourage you to enroll in our program. Please check us out on the web-site: http://www.mitchelltech.edu/sdcfrm or call 1-800-684-1969 for more information. F