 |
 |
|
|
|
Feedgrains like corn and grain sorghum are an important row crop in South Texas. Grain sorghum in particular is one of the best adapted crops for the hot, dry growing conditions of South Texas. Much of the feed corn and grain sorghum grown in the region are sold at local grain elevators and then quickly shipped to other areas to be used as feed for livestock. A considerable amount of South Texas grain is trucked south of the border to support Mexican cattle and poultry industries.
Many Most South Texas feedgrain producers sell their crop to local elevators at harvest. Although there is very little grain storage capacity in South Texas, farmers can still develop marketing strategies involving forward contracting, selling at harvest, and/or hedging using futures contracts and options contracts.
Because of the proximity of to Mexico and Gulf port outlets, the cash sales prices that South Texas growers receive are generally higher than cash prices up in Texas Panhandle. In either case, the price of feedgrains are related to corn futures at the Chicago Board of Trade. For example, when you read in the newspaper that corn futures on the Chicago Board of Trade are selling for $2.00 per bushel, that means that your local grain farmers are probably being offered sales contracts a few cents below or above the futures price. This difference (called the "basis") varies from month to month and season to season, and it is important in market planning. Another convention to be aware of is that grain sorghum prices are often reported in "$ per hundredweight" whereas corn prices are expressed in "$ per bushel." A hundredweight of grain sorghum, which is equal to one hundred pounds, is approximately equal to 1.8 bushels of grain sorghum.
The feed grain market has trended down during 2001. The reason for low prices has been the expectation of large stockpiles leftover due to large U.S. corn carryover and not enough export of U.S. corn. The strong U.S. dollar (relative to foreign currencies) is making our corn exports more expensive to foreign buyers. However, the corn futures markets are reflecting a forty cent per bushel price premium for 2002 corn futures relative to 2001 corn futures. This price premium indicates some expectation of a reduction in carryover grain stocks, either from reduced supply, increased demand, or both. Current, in-depth analysis of the feed grain market situation is available from marketing specialists at Texas A&M University and Kansas State University, as well as from the USDA's Economic Research Service.
Since nobody really knows for certain which way, or how much feed grain prices will change, it is critical that you develop a clear and deliberate marketing plan. A marketing plan is nothing more than an educated contingency plan for how you will sell your crop, take advantage of opportunities, and avoid downside price risk. The education part requires an accurate knowledge of your costs of production, knowledge about the feed grain market situation and outlook, and some familiarity with available tools like forward contracting or hedging with futures and options. Then you need to develop a contingency plan consisting of a series of rules, e.g., if market prices do this, then I will take this action.
One of the best ways to become educated about market conditions and marketing strategies is by forming a "marketing club" with other growers. Texas Cooperative Extension has sponsored marketing clubs for many years. There are also a wide variety of available Extension programs on agricultural marketing. Please contact your county agent if you're interested in participating in one of these programs.
Q. How many acres of corn or sorghum are produced in my county or region?
Q. How much does it typically cost per acre to grow feed grains?
Q. How can I learn more about hedging with futures and options?
A. The most in-depth resource for learning about hedging and developing a marketing plan is to participate in the 64-hour Master Marketer Program, sponsored by Texas A&M Extension Economists. Ask your county agent or click on the link to learn more about the Master Marketer Program.
Dr. Mark Waller's newsletter, Feedgrain Market Outlooks
Dr. Mark Waller's newsletter, Wheat Market Outlooks
Marketing Organizations and Strategies and Price Risk Fact Sheets: a collection of articles describing the impact of marketing techniques on managing risk in agricultural enterprises.