Farm Horizons, Feb. 2016
Most corn and soybean crops are contracted before planted
By Tara Mathews
Raising cash crops can be a big and risky job for the farmer who decides to take it on, especially for those who contract out their crops to local feed mills and ethanol plants each year, sometimes before the crop is even planted.
Fortunately, most farmers now have learned from the mistakes of their elders, and don’t contract out a large percentage of their crops ahead of time, according to Kevin Dahlman, a Cokato farmer.
Dahlman farms corn and soybeans, and only contracts out a small portion of his crop, because most of his corn is seed corn, which he packages and sells himself.
“It’s very common to contract out one-quarter of the projected crop yield or more in our area,” he noted. “Corn and soybeans make up a large percentage of contracted commodities.”
Most field corn and soybean farmers in the area will contract through various feed ports, such as Munson Lakes in Howard Lake, Bushmills Ethanol in Atwater, or CHS Savage Terminal.
“Farmers like to play the market to find a price they like,” Dahlman said. “Some will even hold off if they don’t like any of the prices.”
Typically, farmers don’t contract out 100 percent of their projected crop, because they are then responsible to produce it for the terminal, he stated.
“We usually do it in steps,” Dahlman commented. “We bring in about 10 to 15 percent, and then wait a little bit, then probably bring in another 10 to 15 percent.”
When farmers bring the commodities in increments, they can continue to check the market with each load, and sometimes even find a better price.
“It can be risky to do, also,” he said. “Because, sometimes the market drops, and some farmers don’t have enough storage to just hold off.”
The farmers who have livestock to feed from their crop, as well, will contract out a much smaller portion of their projected crop yield, to save what is needed to feed their livestock.
“Most animal producers know how much each one will eat and only contract what is left,” Dahlman noted.
Another risk many farmers take is contracting for the following year. For example, some can be contracting out 2017’s crop before the 2016 crop is even planted.
“In those cases, we usually only contract about 20 to 50 bushels an acre if we are confident our field will produce 140 to 200 bushels an acre,” Dahlman said. “Anyone who contracts more than that is really sticking their neck out.”
The good part about contracting future crops is, most feed mills will only have the farmer contract an amount with which they are comfortable.
“Most feed terminals know what they need, and contract accordingly, as well,” Dahlman stated.