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Update On Price Risk Management Alternatives For Corn And Soybeans

By Todd Davis

The potential for farmers to lock-in corn profits with a cash-forward contract has been limited since March. The cash corn price for October delivery has been working steadily lower since the March 31st Prospective Plantings report (Table 1). The average corn price is $0.30/bushel lower from the March 27 price and about $0.16 lower from last month (April 18). Unlike soybeans, cash corn bids were not rocked by the May WASDE and have increased $0.07/bushel above the May 12th cash bid price (Table 1).
Cash bids for October delivery are currently below budgeted break-even price levels. Assuming the per bushel total variable cash costs plus per bushel cash rent for corn in Western Kentucky is $3.85/bushel, a cash-forward contract (CFC) of $3.66/bushel would lock in a loss of $0.19/bushel. Pricing opportunities may arise this summer if weather scares occur during the growing season.

Figure 1 compares the price risk management strategies for corn. A CFC at $3.66/bushel is $0.19/bushel below the break-even price that just covers total cash variable costs plus cash rent. Buying a just-out-of-the-money put ($3.80 strike price) would establish a price floor below the break-even price at $3.46/bushel. This strategy would limit a cash loss to -$0.39 per bushel (Figure 1). If December corn futures are at $4.00 per bushel or greater, the $3.80 put would provide a price greater than the CFC price. The cash sales at harvest strategy (red line) demonstrate the great price risk that exists in corn and that risk management could be used to limit losses (Figure 1). The $3.80 put would cover total variable cash costs plus cash rent when the December corn futures price is at $4.20/bushel or higher (Figure 1).


Table 2 and Figure 2 both show that there continues to be opportunities to manage soybean price risk prior to harvest. Cash soybean bids for October delivery have been under price pressure since April 3 but rallied from a recent low of $9.27/bushel on May 1 to $9.38/bushel on May 8. The May WASDE released May 12 reduced cash bids by $0.21/bushel from the price on May 8. However, cash bids have recovered somewhat after the report and averaged $0.07/bushel higher on May 15 (Table 2). The large South American harvest and potential of another large domestic crop has pressured prices lower throughout the spring.

Figure 2 illustrates the price risk management alternatives for soybeans are better than those for corn. A CFC at $9.24/bushel would lock in a margin of $0.84/bushel per bushel contracted over cash variable costs plus cash rent (Figure 2). A $9.40 put would establish a price floor at $8.75/bushel which is a $0.35 margin over the total cash variable costs plus cash rent target of $8.40/bushel (Figure 2). The cash sale at harvest strategy is not as compelling for soybeans given the opportunity to manage margins on a percentage of production prior to harvest. Table 2 is a reminder that these profitable pricing opportunities can disappear quickly. Look at cash bids on May 12 compared to May 8 (Table 2).
 

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Why Seed Analysts are Thriving Under Seeds Canada

Video: Why Seed Analysts are Thriving Under Seeds Canada

Last month in Edmonton, Alta., industry leaders and stakeholders gathered to discuss the evolving landscape of the seed industry at Seeds Canada’s annual conference. Among them was Sarah Foster, president of 2020 Seed Labs and the new vice-president of Seeds Canada.

Foster, who has been on the board of Seeds Canada for over a year, has witnessed firsthand the challenges and opportunities that come with the formation of the organization. Seeds Canada was established just over three years ago through the merger of multiple seed industry groups, including the Commercial Seed Analysts Association of Canada (CSAAC). Since then, the organization has been working to define its priorities and solidify its role in the industry.

“The challenge has been allowing the dust to settle after the merger,” Foster explained. “We’ve been focused on identifying what our priorities should be and ensuring that our members, especially the seed analysts, are getting what they need to continue their professional work.”

One of the recent highlights was a pre-conference event where the three major seed labs in Alberta — 20/20 Seed Labs, SGS Canada and Seed Check — opened their doors to members. The event saw a record number of seed analysts and business professionals in attendance. Foster emphasized the importance of this transparency, stating, “It’s crucial for people to see what goes on behind the scenes. We’re an open book now, and that openness helps build trust and understanding within the industry.”

The event also featured an environmental scan and a series of discussions that fostered strong communication among attendees. According to Foster, the dialogue was both encouraging and inspiring.

“A lot of people were really inspired by the fact that Seeds Canada is moving ahead with its agenda. The seed analysts, who have always worked diligently in the background, are now being recognized more prominently,” she said.

Before the merger, seed analysts were represented by CSAAC. Now, as part of Seeds Canada, they are finding their place within the larger organization. Foster believes that the integration has been successful, noting, “I think we’re thriving. You only need to look south of the border, where similar consolidations are happening.”

As Seeds Canada continues to evolve, Foster remains optimistic about the future. “I want to be totally transparent with anyone who is a seed analyst — I’ve got your back. We’re moving in a positive direction, and we’ll do everything we can to meet the needs of our members,” she said.