Business Decisions on the Farm

Patrick Kirchhofer - Peoria County Farm Bureau

After a dry June, the rains came in July, just in time for the critical pollination period for corn. In early August, the corn crop looked great, and area farmers should expect to harvest above-average yields this fall. There was a short time period in June when crops were beginning to stress because of the heat and dryness, and farmers were able to sell or contract corn for more than $4 a bushel. But just as a hot, dry summer day zaps moisture from the soil, the rains in July took the excitement out of the corn market and quickly brought the price closer to $3 a bushel. As always, supply and demand governs a free-market system.

The planes were flying in late July in the rural Peoria area. Although the saying "rain makes grain" was welcome news, the rains can also bring an onset of diseases. Foliar fungal pathogens such as gray leaf spot and northern corn leaf blight can infect corn, while sudden death syndrome (SDS) and white mold can reduce yields in soybeans. The aerial application of fungicides is one way to help control corn and soybean diseases.

Farming is a business, and farmers have many business decisions to make throughout the year. What are these decisions? They vary from farmer to farmer and farm to farm—and of course, the weather always dictates much of the decision-making process. But for a typical Midwest farm that grows corn and soybeans, it would look something like this…

At harvest, some farmers will store their corn and soybeans in circular, silver grain bins, while those without enough storage capacity on the farm will bring their crops to the local grain elevator. Grain elevators in Peoria County include AgLand FS in Bartonville and Elmwood, Akron Elevator in Brimfield and Edelstein, Monica Elevator in Monica and Dunlap, and Rumbold and Kuhn (R&K) in Princeville. If storing grain on the farm, the farmer must make sure it is at the proper moisture level. Corn is considered dry and suitable for storage at a moisture level of 15 percent; soybeans are considered dry at a moisture level of 13 percent. The farmer will need to consistently monitor the grain quality during storage until it is removed from the bin and hauled to a processor, such as ADM on the Peoria riverfront, or to a river terminal for the export market, to be barged down the Illinois River.

When harvest is complete, farmers need to decide when to sell the crop. Some farmers may have already made the decision to contract or “forward-price” a percentage of their expected harvest during the growing season. For example, let's say a farmer expects to harvest 10,000 bushels of corn in October. If, during the growing season, there was a dry period and the price of corn increased (as it did this June when corn reached $4 a bushel), the farmer may decide to contract or sell in advance a percentage of the expected harvest; let's say 30 percent, or 3,000 bushels. The farmer would then still have an expected 7,000 bushels remaining to sell after harvest is complete.

Selling a crop in advance of harvest can be risky. The dry spell in June could have developed into a drought in July, and the actual harvest might have dwindled to only half of the expected yield, or 5,000 bushels. If that occurred and the harvest was less than expected, the price of corn would likely increase, and the farmer missed out in two ways: with fewer bushels to sell (5,000 instead of 10,000) and a lower price ($3 a bushel instead of $4).

Here's a brighter scenario. The farmer made a brilliant move in June when the price was $4 a bushel (because of the dry weather), contracting to sell 3,000 bushels of the expected harvest. As the rains came in July (just as they did this year), the crop flourished and the farmer ended up harvesting a good yield of 225 bushels an acre, instead of the average 175 bushels an acre. It's a win-win situation, as the crop was sold at a good price ($4) and yields (225 bushels) were above average.

Oftentimes, one of these brilliant marketing decisions is followed by a more humbling one. The bottom line is that farmers need to be disciplined in many aspects of farming, including marketing their grain. iBi

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