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FARM & RANCH
THE NORTH PLATTE TELEGRAPH
AUGUST 2020
Preparing yourself for corn under $3 per bushel
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Y-axis and prices on the X-axis, we can map probabilities to commodity prices. For exam- ple, there exists around a 5% chance that the CZ20 price may be under $3 per bushel. You can see this by locating $3 per bush- el on the X-axis, then finding the point where $3 per bushel in- tersects the red line, and then finding the corresponding val- ue on the Y-axis, which is 6%. In other words, there is a 6% chance of CZ20 ending up below $3 per bushel. The chance of the CZ20 being below $3.50 per bush- el is 30%. What does this mean? First, the probability of the December corn futures price ending be- low $3 per bushel exists. We just haven’t experienced this price outcome given today’s production costs. Recent price movement is placing us closer to realizing this low probabili- ty outcome, but we are not quite there yet. We don’t need to rely on expe- rience to find out what happens if you jump out of an airplane at 30,000 feet. We know the laws of gravity. The price probability distribution exists in a theoret- ical world and the rare events suggested by the approach may never be realized. But if low prices come to be realized, can you survive? Experiencing low
prices pressures farm survival and therefore one must respect the laws of prices and know what to do if they come. More importantly, what are you going to do about it? With a 6% chance of futures markets below $3 per bushel, and 30% chance of below $3.50 per bushel, you need to write down a proactive plan now. Although the basis across the state has been stronger, cash prices are likely to be at or be- low $3 per bushel on Dec. 1. Here are some questions you should ask yourself as you pre- pare for the rest of the year: » Can you do some more pre- pricing before harvest? » How long can you survive when cash prices are at or below $3 per bushel? » How much cash do you need between now and spring? » What is your true cost of storage? Don’t forget to include interest, overhead and crop dete- rioration expenses. After answering these ques- tions for yourself, write a proactive grain marketing plan that sets realistic price goals and sale deadlines for the 2020 crop. Share your plan with someone else (a spouse, banker or merchandiser) to help keep you accountable to your plan.
By CORY WALTERS and JESSICA GROSKOPF University of Nebraska-Lincoln Extension The market rally following the June 30 USDA Acreage re- port has come and gone. So, now what? This article will discuss the price probabilities for the last half of 2020 and how to pre- pare for farm survival. The period of late July into early August, when the crop size is becoming clearer, occurs when the December corn (CZ) futures price starts to take a di- rection, up or down. In most years, prices will tip slightly down as crop size and use end up around what was expected. Dips can be larger due to re- ductions in use and/or larger crops. Now is the time to clean out your bins of the remaining old crop, and start developing a post-harvest strategy for your 2020 corn. So, where will the market end up? The crop insurance project- ed price for corn was $3.88 per bushel with a volatility factor of 0.15. Using the projected price and the volatility factor we can identify a range of where prices for the December corn contract (CZ20) may end up on Dec. 1 (fig- ure 1). With probability on the
members to further questions some of the packers’ business prac- tices. “There are always go- ing to be disagreements when you’re looking at a market, when you’re looking at prices, and when you’re talking about people’s liveli- hoods,” Fischer said. REPORT from Page F2
Consolidation in the beef industry has long been a hotly-debated topic among beef pro- ducers. Fischer, herself a beef producer from Valentine, said four packers controlling 80% of the market is bound to lead to challenges. That’s why she also sent a letter to the Justice Department asking them to step in and in- vestigate the industry. Fischer’s letter was
co-signed by 18 of her colleagues in a biparti- san manner. They also asked the department to look into any poten- tial price-fixing in the beef industry. There’s no expected timeline for the DOJ investiga- tion to conclude. The beef industry in Nebraska and around the country has been reeling for some time because of prices con- sistently below the cost
of production. Fischer said the impact is felt through all segments of the industry. “Feedlots are get- ting hit hard,” she said. “They are see- ing tremendous losses between 300 and 500 dollars on every head of cattle they produce. Cow-calf producers are seeing a continuing decline stretching on for the past five to six years.”
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