Break even point and yield estimates

first_imgShare Facebook Twitter Google + LinkedIn Pinterest With little bullish old crop news, corn continues to trade a very tight range. There continues to be too much grain in bins and farmers using deferred pricing (DP) to push prices higher. End users seem to have good coverage on. No one knows when or if this will change.Bean prices rallied to recent highs with the U.S. dollar losing some value to the Brazilian Real, helping U.S. export potential. One issue, the early spring may push cattle to pasture sooner in the Southern states, which would mean feed demand reduction. Similar to corn, many think too many beans are still stored on farms, which may limit upside potential.Weather storyThis spring there has been a flower “super bloom” in the Death Valley desert. This phenomenon has happened twice in the last 30 years (1998 and 2005). In both years the corn crop yield was near normal. Also, corn prices peaked in March for 1998 and July for 2005 with both losing 80 cents in value from the high by December. Interestingly, comparing Great Lakes ice levels those years, 1998 had the third lowest on record and 2005 was the 13th lowest level of ice in the last 40 years. Will 2016 be similar?Market actionSensing beans may stay in the current trading range, I priced the remainder of my 2015 crop (8.98 against July futures). I’m disappointed I didn’t improve the price of my position after harvest when beans were about $9, but I’m happy I didn’t take much less either.This means my average futures price for my 2015 bean position is $10.79. I still have basis to set on these beans sometime in the near future.Break even points and yield estimatesI ran the break evens for a new client. Initially, we ran a profitability test based upon conservative estimated yield numbers for both corn and beans. The test showed, based upon these estimates, they would not be profitable planting beans and would only break even planting corn. Reviewing the numbers, my client said the yield estimates may have been too conservative. After rerunning the test with more “normal” yield results, it showed they could potentially have a profit for both corn and beans. And with the run up in beans earlier in the week, it was nearly even to plant corn versus beans.When farmers run budgets for the year, one bushel per acre yield changes on soybeans can mean nearly a $10 per acre difference in income more or less, depending on the average bushels per acre and the price on the CBOT.For instance, if a farmer raises 45 bushel per acre beans, changing the estimated yield by 1 bushel changes their break even by 20 cents per bushel. So, if the estimate is too conservative (say 5 bushels), break evens can be $1per bushel off. Similar with corn, a 5 bushel per acre difference accounts for nearly $20 per acre in income. Based upon the 165-bushel per acre national average this could change the breakeven price by 12 cents.Many farmers do not take the time to find out what their break evens are. With tight margins facing farmers this year it is imperative that farmers understand these numbers. All farmers have their past performance to start building a budget. After going through the process, you may be surprised to learn your breakeven point isn’t as high as you expected.Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results. He can be contacted at [email protected]last_img