A Minute with Creed

Eye on the Prize in 2019, Again

What a wild summer it has been. From contract highs to contract lows, too hot to too much rain and topped off with tariff implications, there has been a headline in every direction you turn. In the face of these challenges and headlines, it is questioned how ag produces, who are typically "price takers". are supposed to be successful in such volatile environments. In today’s ag world, there is no “free passes”  and In the last three years, opportunities have been short lived.. Amidst all of the concerns around tariffs and carryout’s, it is hard to imagine that a similar situation would notplay out again in 2019. With this in mind, Do we have eyes on the prize past this year’s crop?

With gusto, the conversation around acreage changes in 2019 has already begun. However, this early, that debate is a little overblown in my opinion. Of the three principal crops of wheat, soybeans and corn, wheat is the only one that seems to currently hold the cards to a clear path of increase in area by 1.5-2.0 million acres between all three classes of wheat. HRW is currently nearing the halfway mark in its spring insurance price discovery period, running over a $1 bushel higher than last year. How will that play out for corn and soybean area? Specifically for this conversation, how will the remaining acres be split between corn and soybeans?? This will be determined in a few months, not in August of the preceding year.

World and U.S. carryout’s in corn and soybeans are trending in different directions. After the August USDA report, current domestic stocks estimates are 11.2% for corn and 18.4% for soybeans and appear to still be at risk of continuing to diverge. Meanwhile, costs of production for 2019 seem to be inching slightly higher with fertilizer products leading the charge with 15-25% increases seen to date. Meanwhile, land and seed has been flat year after year. As I type this, corn prices for new crop ‘19 are flat compared to new crop ’18 at this time last year, while soybeans are currently 50 cents lower. All of that said, the opportunities for 2019’s profitable marketings need to be known NOW, not later.

I understand every case is different. However, for demonstration purposes,  I will use Iowa State cost of production analysis for the 2018 crop year and add 5% to each.

 

2018 Costs

200 bushel corn - $694 per acre

55 bushel soybeans - $516 per acre

 

2019 Costs w/ 5% increases

200 bushel corn - $728 per acre

55 bushel soybeans - $541 per acre

 

If these are WRONG for your operation, that is ok, but please sharpen your own pencil.

What is a reasonable goal in today’s environment for profits or “return on investment”? What if we used a lofty goal to match those seen in 401k’s recently near 20% annual returns? That would require roughly $4.36 cash corn and $11.80 cash soybeans using the yields and cost estimates of 2019. Is that possible? Never say never but those kinds of prices would require a shifting of the plates under the marketplace today.

Point being, it’s time to start this process. In the heart of the corn belt, $4.00 average cash corn for 2019 is not a pipe dream regardless of any bias on the market. However, $4.00 average also means you must be looking at deferred opportunities past harvest of 2019. Soybeans can continue to surprise all involved and you just flat out never know.

I challenge you to start now. What will your estimated total revenue need to be for 2019 to offset your costs and a 5-10-15-20% return above and beyond your costs? The noise in the market place the last 3 months has quickly “taken our eyes off the prize”. What works for you and what are you going to do about it whenever the opportunity arises?