Purdue seminars prepare farmers for biofuels-era marketing
WEST LAFAYETTE, Ind. — A government subsidy many farmers have relied on for years is gone. Ethanol and soy biodiesel — not budget-cutting legislators — are behind the suspension of the loan deficiency payment (LDP), said a Purdue University agricultural economist.Producers will need to learn to live without the LDP for as long as the biofuels market inflates corn and soybean prices, said Corinne Alexander. That means farmers should sharpen their marketing skills in order to maximize their profits in volatile grain markets.
"The biofuels boom makes marketing much more important for farmers," Alexander said.
Alexander and fellow Purdue agricultural economist Chris Hurt will lead a seminar series on grain pricing and selling for producers. "Grain Marketing in the Biofuels Era" takes place on four Mondays in January and February, with sessions broadcast at sites across Indiana.
With biofuels production driving up the demand for corn and soybeans, crop prices are too high to trigger LDPs, Alexander said. A longstanding support payment, the LDP pays producers the difference per bushel between local market prices and local loan rates on program crops, when prices dip below loan rates.
"What we've seen over the last five weeks or so is that corn and soybean prices have increased dramatically," Alexander said. "Going into this year, we were saying that there may be a chance for an LDP this fall. Well, we are way above LDP levels. Going forward with price levels well above the loan rates, farmers aren't going to have that downward price protection offered by the government. They are going to face the full spectrum of price variability."
In the past, most farmers factored the LDP into their grain marketing decisions, Alexander said.
"There also tended to be large storage returns, so producers would use storage hedges or forward contract on the cash market, so that pricing early was often a winning strategy," she said. "Now we're seeing prices increase substantially for future deliveries, so waiting to price seems to be a better strategy."
Even farmers who miss the price peaks or want to wait longer for still higher prices can utilize other marketing techniques, Alexander said.
"Should there be another energy price spike that increases demand for corn again, they can use a sell-and-defend strategy, where you price your grain with a forward contract and then buy an out-of-the-money call," she said.
Those issues, and others, will be covered in the Purdue marketing seminar.
"This four-part marketing course covers all of the different pricing options producers have for setting the price for their grain, from futures to options to cash market alternatives," Alexander said.
Seminars are scheduled from 7-9 p.m. EST Jan. 22, Jan. 29, Feb. 5 and Feb. 12. Session titles and topics include:
• Jan. 22. "The New ERA: Markets Instead of Government" — Marketing concepts for the new era; why futures markets love biofuels; introduction to the mechanics of futures markets; and using futures markets.
• Jan. 29. "Options to Manage Price Risks in Volatile Markets" — The mechanics of options; valuing options in the biofuels era; and options strategies.
• Feb. 5. "Current and Future Pricing Alternatives at the Local Buyer" — The importance of basis; seasonality of futures, cash and basis: impacts of biofuels; basic pricing alternatives at the elevator; new generation contracts; and will the future be "specific attribute-identity preserved marketing"?
• Feb. 12. "Market Decision Making in the New Era: What Works?" — Characteristics of price patterns in the biofuels era; predicting price direction; overview of potential pricing strategies; optimum pricing strategies; and a 10-step marketing plan.
Twenty-five counties are broadcast host sites, with most showing the seminars live.
Host counties and contacts are: Adams — Brad Kohlhagen, (260) 724-5322; Allen — Gonzalee Martin, (260) 481-6826; Bartholemew — Mike Ferree, (812) 379-1665; Clark — David Trotter, (812) 256-4591; Clay — Mark Evans, (812) 448-9041; Clinton — Curt Emmanuel, (765) 659-6380; Dearborn — Nick Held, (812) 926-1189; Decatur — Dan Wilson, (812) 663-8388; Grant — John Woodmansee, (765) 651-2413; Harrison — Adrienne Rich, (812) 738-4236; Hendricks — Jon Cain, (317) 745-9260, Chris Parker, (765) 342-1010 and Doug Akers, (765) 482-0750; Howard — Allen Ullom, (765) 456-2313; Knox — Staceye Johnson, (812) 882-3509 and Chad Pfitzer, (812) 254-8668; and LaGrange — Steve Engleking, (260) 499-6334.
Also, LaPorte — Gene Matzat, (219) 324-9407, Todd Hutson, (219) 465-3555 and Stan Sims, (219) 755-3240; Marshall — Bob Yoder, (574) 935-8545; Newton — Dan Ritter, (219) 285-8620; Orange — Andy Boston, (812) 723-7107; Parke — Mark Spelbring, (765) 569-3176; Perry — Margie Zoglmann, (812) 547-7084 and Phil Schmidt (812) 649-6022; Pulaski — Michael Reetz, (574) 946-3412; Shelby — Scott Gabbard, (317) 392-6460 and Roy Ballard, (317) 462-1113; Tippecanoe — Corinne Alexander, (765) 494-4249 and Jeff Phillips, (765) 474-0793; Vanderburgh — Jon Neufelder, (812) 838-1331 and Gary Michel, (812) 897-6101; and Vigo — Lindy Miller, (812) 462-3371.
For broadcast site locations, call the contact person listed above for that county. Other broadcast sites could be added. Check with a county office of Purdue Extension for additional locations.
Seminar registration is $20 and includes grain marketing materials and the Purdue Extension CD, "Commodity Marketing." To register, call the contact person for the specific county site where you wish to attend. The registration deadline is Jan. 5.
The seminar series is being presented with financial support from the U.S. Department of Agriculture Risk Management Agency.
Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu
Source: Corinne Alexander, (765) 494-4249, cealexan@purdue.edu
Related Web site:
Purdue Department of Agricultural Economics
Ag Communications: (765) 494-2722; Beth Forbes, forbes@purdue.edu
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