Update on Price Risk Management Alternatives for Corn and Soybeans

Todd Davis, Extension Economist, University of Kentucky

The potential for farmers to lock-in corn profits with a cash-forward contract has been limited since March. The cash corn price for October delivery has been working steadily lower since the March 31st Prospective Plantings report (Table 1). The average corn price is $0.30/bushel lower from the March 27 price and about $0.16 lower from last month (April 18). Unlike soybeans, cash corn bids were not rocked by the May WASDE and have increased $0.07/bushel above the May 12th cash bid price (Table 1).

Price Risk Management for Corn, Soybeans and Wheat

 Todd Davis, Extension Economist, University of Kentucky

The potential for farmers to lock-in substantial corn profits with a cash-forward contract has been limited so far this spring. Assuming the per bushel total variable cash costs plus per bushel cash rent for corn in Western Kentucky is $3.85/bushel, a cash-forward contract would not provide any cushion to cover fixed costs, service debt, provide for family living, and to fund future business growth.

Current Price Risk Management Alternatives for Corn and Soybeans.

Todd Davis, Extension Economist, University of Kentucky

Current Price Risk Management Alternatives for Corn and Soybeans It is not too early to use price risk management tools to protect some of the projected corn and soybean revenue for this year. Risk management alternatives include locking in a cash price using cash-forward contracts (CFC) on a conservative percentage of expected production. A CFC removes price risk but you may feel regret if cash prices at harvest are higher than the CFC price. Another alternative is to buy put options to place a price floor but still benefit from any potential increase in futures price from now until harvest.