-Com Talk, Lancaster Farming, Saturday, March 3,2001
226
Use Crop Marketing, Insurance To Protect Profits
ANDY ANDREWS
Editor
ALLENTOWN (Lehigh
Co.) The corn market
forecast year looked pretty
bearish to one economic fore
caster in January this year.
If so, the earlier you sell in
a bearish market, “the better
off you are,” said Bob Utter
back.
Utterback, a registered
commodity broker and presi
dent of Utterback Marketing
Services, Inc., (UMS) in New
Richmond, Ind., spoke near
the end of January about
market strategies.
Utterback addressed about
112 corn growers and agri
industry representatives at
the “Decisions: For The Real
Beginning of the 21st Cen
tury” Conference at the Days
Inn and Conference Center
near Allentown.
Sponsored by the Lehigh
Valley Grain Marketing Club
and Penn State, the crops
marketing conference looked
to ways to ensure profitability
by looking at ways to make
crop investment insurance
work for the grower.
For growers, “D-Day” is
March 31, when the USDA
releases its expected plant
ings report.
For the planting year, one
of four patterns can develop:
• A slow seller’s night
mare. This is a condition in
which there is too much
supply, too little demand, ad
equate planting, no signifi
cant weather-related yield
event (such as drought or too
much rain), no seasonal rally,
and a sell-off all year. Too
much supply and too little
demand are huge culprits
and bear down on prices.
A producer has to operate
like an elevator that is, buy
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grain on a wide basis and sell
the carry. However, too many
producers hold their grain,
expecting a flat price rally
that hardly ever materializes.
“It’s very difficult for
farmers to sell carry,” Utter
back said.
• Pattern 2, a seasonal
rally into the spring, normal
yield, hard break into early
harvest a time of uncer
tainty and anxiety, noted
Utterback. “We need to be
better marketers,” said
Utterback. Investing in crop
insurance is key.
• Pattern 3, countersea
sonal. This includes a normal
spring, a weather rally, a sell
off on assumption of good
yield, late season weather
event, and a major counter
seasonal fall event. Such a
period allows the market to
be “very violent, very emo
tional,” Utterback said.
Utterback noted that in
January at the conference, he
sees a drought year in 2001.
He looks to not only this year,
but what he plans in 2002
planting season as a result.
“A marketing plan is a
plan for failure,” he said. “It
addresses what I’m going to
do if I’m wrong.”
Producers can no longer
hold onto corn, waiting for a
flat price late rally. They
have to think through a mar
keting plan that incorporates
crop insurance, proper for
ward pricing (price hedging
included), and use loan defi
ciency payments, or LDPs.
• Pattern 4, start slow and
rally hard. There won’t be a
repeat of the 1996 “bullish”
event, according to Utter
back.
A grower can’t simply
plant corn, harvest it, and
wait to sell it. Growers
717-933-4114
should:
• Aggressively use crop in
surance programs to assure
yield.
• Focus on seasonal sales
for corn.
• If target price is not hit
by desired time, move to au
tomatic format.
• Focus on defending a
short (sell) position against a
weather event. Producers
should assume that every
time they decide to sell, that
decision could be wrong, and
they should devise a “battle
plan” to ensure they get the
best price.
• Focus on protecting
LDP next fall.
• Move grain as soon as
basis narrows.
More and more, producers
will have to delegate the work
of protecting the crop price to
services and brokerages.
For growers, the good news
is that corn usage is increas
ing; China continues to be a
major uncertainty in the
market; and for prices to be
explosive in 2001 for U.S.
producers, “we need to see a
significant reduction in do
mestic (U.S) corn,” accord
ing to Utterback.
The lack of fertilizer be
cause of the natural gas
crunch will mean less yields
and perhaps improved prices.
Growers should remember
that just because they pro
duce a crop, producers have
to ask themselves “what does
our client want, not what we
want,’’ said Utterback.
Utterback’s company,
UMS, predicts 2001 will have
78 million acres in corn, 136.5
bushel per acre yield, with a
supply of 11.5 billion bushels.
Estimated U.S. cash price is
$2.20 a bushel.
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An adequate corn supply
exists now, but bullish issues
are developing. If demand re
mains strong, acres should
drop, and any yields beyond
137 bushels per acre should
result in a pattern 3 or 4 for
corn.
Utterback predicts a high
corn market this year.
For an old crop in storage,
growers should wait to sell
the inventory until April or
May, but get in a position to
sell 2001 crop right away.
Some tips for planning:
Oxygenate Requirement
A Senate bill banning
MTBE would not rewrite
clean air laws, and could sig
nificantly boost the market
potential for ethanol. Sen.
Peter Fitzgerald (R-IL) rein
troduced the “MTBE Elimi
nation Act” on Feb. 6. The
legislation would eradicate
the toxic fuel additive within
three years, and contains a
number of provisions specify
ing gasoline labeling and en
vironmental monitoring
requirements. “We should
eliminate MTBE without sac
rificing air quality, and I be-
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• Target price at $2.60-
2.65 per bushel.
• Prepare a defensive
strategy, through puts or
calls, to ensure the price you
want.
• Obtain crop insurance.
• Make basis decision,
limit risks on calls.
• Obtain disaster insur
ance.
• Develop an LDP strat
egy.
“We are as bullish as we
can be, at least since 1995,”
Utterback noted.
lieve we can do that by
promoting ethanol as an en
vironmentally friendlier sub
stitute in the clean air
program...
Proposals to repeal the
oxygenate requirement
attack the wrong problem.
The problem is not the oxy
genate requirement, the prob
lem is MTBE,” according to
a Fitzgerald news release.
A USDA study projected
that a nationwide ban on
MTBE-followed by replace
ment with ethanol in the
country’s gasoline supplies
could boost farm income by
$1 billion annually and create
13,000 new jobs in rural
America.
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