Welcome to Part 2 of ARM’s special 2-part series on grain marketing in times of commodity price volatility. In this issue, we will explore how to capitalize on market opportunities as they arise, particularly during price rallies. The commodity markets have experienced significant volatility in recent months, leaving many feeling uncertain. Opportunities can emerge both when we anticipate them and when we least expect it.

Having a strategic marketing plan in place for 2025 will enable you to act swiftly and seize these rallies as the occur. Scale selling into rallies, also known as the “inverted pyramid method,” is a proven strategy to decrease price risk.

The inverted pyramid focuses on scaling your sales during market rallies. Secure profits during a rally by selling a small portion of your anticipated production at the beginning of the rally. As prices rise, gradually increase the volume of your sales at higher price points, which allows you to capitalize on progressively larger profits throughout the rally, while still leaving room for potential gains at the peak. This strategy mitigates risk by locking in profits throughout the series of sales.

For example, consider selling**:

-5% of your production at $4.60/bu on day 5

-10% at $4.75/bu on day 10

-15% at $4.90/bu on day 30

**Percentages are for demonstration purposes only

How is this approach beneficial? Let’s delve into the concept of a weighted average, which calculates the average price based on the volume of sales at various price points. In the scenario mentioned, if you lock in sales at three different levels – 5% of 5,000 bushels, 10% of 10,000 bushels, and 15% of 15,000 bushels – the weighted average price for these sales would be $4.80, just a dime shy of the peak.

However, consider the possibility that the expected third level of $4.90 never occurs. If the market begins to decline after hitting $4.75, you might find yourself in a rush to sell before prices fall further. If you end up selling everything at $4.55, you’ve missed out the opportunity to capitalize on higher prices. Conversely, had you implemented scale selling and sold at $4.60 and $4.75, your weighted average would have been $4.70, resulting in a loss of $0.15 by waiting.

This method is beneficial not only for new crops but also for old crops. Incremental sales during a price rally can yield better returns than attempting to sell everything at a peak price. How is this achievable? Recall the discussion in Part 1 of this newsletter about carrying costs. By reducing your debt tied to the crop with each incremental sale, you effectively lower your carrying costs. For example, if your carrying cost is $0.10 per bushel per month and you manage to halve your associated debts during the month, your carrying cost could decrease to $0.06 per bushel. As we know, net income consists of revenue minus expenses. Even if your revenue increases, your net income will not rise if your expenses also continue to climb.

The takeaway here is that risk is inherent in this business, but the way you manage that risk significantly impacts your overall success. Instead of holding out for a single major opportunity to sell all at once, consider each phase of a market rally as a chance to secure profits. By taking advantage of these incremental opportunities, you can effectively manage your returns and reduce the risks associated with market volatility.

For a visual example, see exhibit A below:

Let’s explore this concept further with an example, utilizing some of the insights from above along with the accompanying table below. This table illustrates three incremental sales of a total of 70,000 bushels of corn, made over a span of 30 days. For this scenario, we assume that the funds from each sale are applied to existing debt. This approach is contrasted with holding onto all crops for 30 days and selling them at the highest price point ($4.85). At first glance, it appears holding out would be most lucrative ($335k vs $339.5k), but what about the cost to carry? The cost associated with holding the crop for a full 30 days at $0.10/bushel would equate to $7,000 whereas the cost to carry when reducing debt across the first 2 sales would bring the cost down to $0.06 or $4,200. When considering this information, waiting a full 30 days to sell “at the top” only yields an additional $0.02 per bushel or $1,700. Is $0.02 per bushel worth the risk in the event the market does not continue upwards?

Now, let’s examine another scenario: Picture the market not reaching $4.85. Instead, it peaks at $4.75 and then steadily drops to $4.65 while you maintain your position. In this scenario, delaying your sale could result in a loss of $0.04 per bushel. By employing the scale selling strategy, you could achieve a weighted average price that is $0.02 higher than the $4.65 at which the held grain ultimately sells. Furthermore, utilizing scale selling would also reduce your carrying costs by $2,800. By strategically managing your risk in this situation, you can enhance your overall profit.

In Part 1 of this special series, we’ll explore the familiar elements that often move the markets and how to think strategically about selling your crops as the market moves.

What factors are currently influencing the commodity markets? Let’s take the recent upturn across the grain markets and corn as an example. In November, CH25 fell to $4.25, but as of today, it has surged back to $4.89.

What might be fueling this increase?

1. Managed money, often referred to as “the funds,” has reached near-record long positions and is increasing their contracts, sharply contrasting with their previous net short position.
2. Argentina has lowered its crop forecasts due to unfavorable weather conditions.
3. CONAB reports that Brazil has only completed a little over 1% of their crop, compared to the typical 10% for this time of year.
4. Equity markets are recovering from prior declines, (S&P 500 and NASDAQ)

Any combination of these factors, among others, could be driving the more than 60-cent rise in corn prices. It’s unrealistic to think you can sell everything at the top of the market, as market tops can be elusive, and trends can reverse quickly. During a price rally, stay vigilant watching managed money movements, international production, currency strength, equity market trends, trade agreements, and significant political developments. All of which can have a large impact on commodity prices.

Having a solid marketing plan in place is essential for achieving success, and this goes beyond just looking ahead to 2025. Developing a plan for your 2024 stored crops is just as crucial as arranging contracts and sales for new crops. This becomes even more critical when you take carrying costs into account. Although your payout from the elevator may increase, so too will your interest charges.

Consider a farm operation with 70,000 bushels of corn stored commercially witha a steady market price of $4.82 per bushel with a debt of $325,000 owed at various interest rates. Over 30 days, the carrying cost in this scenario amounts to $6,746.62 or $0.10 per bushel. Observe how interest and storage fees can eat away at profits. While prices might increase, prices could also decline.

The duration for which your crop remains in commercial storage or in the bin can significantly influence your profitability for the year. As illustrated in the table above, your profit will vanish entirely between the 30 to 60-day period. While there may be instances where waiting to sell boosts profits, when you factor in carrying costs, the actual increase in profit is often less substantial than anticipated. It’s important to look beyond just the sell price of each bushel; assessing the holding costs is crucial for truly understanding the boundaries of your profitability.

In Part 2 of this special edition newsletter, we will discuss the grain marketing pyramid strategy of selling, which is a strategy designed to mitigate commodity price fluctuation risk.

Hot Button Issues

Welcome to the inaugural ARM Newsletter of 2025! We have quite a bit to discuss! On December 20th, Congress approved a bill aimed at averting a government shutdown. Among its provisions was a substantial $110 billion earmarked for Disaster Assistance, with $10 billion specifically designated for economic support for farmers. Furthermore, the existing farm bill, originally established in 2018, has been extended until September 2025. This extension ensures that existing payment programs (ARC/PLC) and crop insurance terms will continue through the 2025 crop year.

Link to full article: A closer look into farm assistance in the recently passed continuing resolution – Agweek | #1 source for agriculture news, farming, markets.

*The chart below illustrates the payment amounts per acre as outlined in the aforementioned bill.

Quick Commodity Price Chat

• March corn prices have surged significantly since January 9th, with an increase of nearly 20 cents. This rise follows a more optimistic USDA report that revised corn and soybean yield estimates.
• The national average corn price currently stands at $4.40.
• There has been a steady stream of farmer sales being reported across the country, as this is the rally many were waiting for.

From the Boots on the Ground at ARM

Let’s get started in the South.

Georgia has faced a tough battle with nature, experiencing a six-week drought during the hottest summer months, followed by an unprecedented hurricane in late September that severely impacted yields. Even irrigated crops struggled under the intense summer heat before the hurricane wreaked havoc on what remained. As farmers in Georgia plan for 2025, it is clear that challenges lie ahead.

North Carolina has encountered similar weather challenges, plagued by drought followed by tropical storms. Many farmers are experiencing disappointing yields and prices, leading to significant shortfalls within the ag community. As they look toward 2025, many farmers are uncertain about their crop mix, with cotton prices plummeting and tobacco growers awaiting clarity on demand as China, a major importer of US tobacco, remains tight lipped about potential tariffs.

Now to the North.

In Iowa, often haled as the “Queen of Corn”, cash flow remains tight, similar to the rest of the nation. However, it’s not all negative in the kingdom. Farmers with diversified operations that include cattle are benefiting from rising beef prices. Additionally, both feed and ethanol plants are supporting corn cash prices across various areas in the state. Unfortunately, fertilizer prices remain high and have not decreased, even as commodity prices have substantially fallen.

Hot Button Issues

One of the most discussed issues at the moment is the Farmer Assistance and Revenue Mitigation bill (FARM ACT), which is $21 billion agricultural aid initiative currently under consideration by Congress. This legislation aims to provide essential support to the farming community. Initially, there were hopes that these payments would be delivered by the end of the year or early 2025. However, it now appears that Congress has a packed agenda during their “lame duck” session, and this matter may not be prioritized. While there is speculation that it could be linked to a hurricane relief bill, farmers are advised not to rely on this occurring soon. Link to the full article – Proposed FARM Act would have major impact – Brownfield Ag News

Below is a graphic illustrating how payments *might* look if the plan is approved as currently proposed.

Quick Commodity Price Chat

• December Corn prices are up by a dime since Friday, buoyed by significant gains in the wheat market. The national average cash corn price has increased by 3 cents to $4.04 per bushel. Corn Dec ’24 Futures Price – Barchart.com
• Total shipments for the marketing year have reached 9.062 million metric tons (356.77 million bushels), marking a 31.88% increase compared to the same period last year and a six-year high for this week.

If you’re anticipating a price increase, it’s wise to have a target in mind and act when it reaches that point. Just because prices are on the rise doesn’t guarantee they will continue to climb.

From the Boots on the Ground at ARM

There is a significant connection among the regions highlighted below, with all expressing concerns about land rent for 2025. In our next newsletter, we will conduct an analysis of land rent trends throughout ARM’s coverage area.

Let’s get started in the South.

In Louisiana, the harvest is finished! However, basis prices are still negative, and many farmers are holding onto their crops in hopes of better pricing. Cotton ginning is underway, and although not much is being reported about the grades, yields have been average. Cash rent for 2025 is top of mind, as many are concerned if the price per acre will work with current commodity prices.

Moving over to Arkansas, harvest conditions have been quite dry. Recent rainfall has complicated the conclusion of the harvest. Overall, rice and corn yields have been above average, while soybean yields are average. A hot topic in the region is the rising cash rent for farmland. Farmers believe there may be opportunities to acquire new land for farming, but the costs associated with this may exceed what many farmers can currently afford.

Now to the North.

In South Dakota, the corn crop performed well, with most yields meeting or surpassing expectations. Soybeans, however, faced challenges due to a dry spell later in the season, impacting their yield. Farmers without variable rent agreements are particularly anxious about the 2025 growing season. North Dakota, on the other hand, experienced a less favorable season, with no crops exceeding expectations. The growing season began with a significant number of prevent plant acres, and while the crops that were planted performed adequately, it was not an exceptional year overall.

Hot Button Issues

Last ARM newsletter, we touched on the historic drop in Net Farm Income (NFI). Since then, new research has been released, and there’s been an upward revision to NFI, which is largely thanks to livestock. On the surface, when revieing the revised report, it might seem like 2024 won’t be as tough as originally expected. This prompted the Senate Ag Committee to create their own report, detailing how dire conditions truly are. Not all sectors will be hit as hard as others, the full research and graphics can be found here – [2024-09-09] A False Positive: USDA’s Farm Income Projection | Senate…

• Grains were hit the hardest:
  • Wheat is down 48%
  • Soybeans are down 38%
  • Corn is down 36%
• Cotton, other crops, and specialty crops saw declines, though not as steep:
  • Cotton is down 26%
  • Other and specialty crops are down 9-21%
• Livestock:
  • Hogs stand out here, posting the second lowest NFI in over 15 years (adjusted for inflation).
• The outlook on production costs doesn’t offer much relief either. Costs aren’t expected to drop in 2025, and they’re now 20-31% higher than they were before the last upward price cycle.

Quick Commodity Price Chat

• The cash price of corn (based on the board) is hovering around $4. As of today, December corn futures (CZ) are about $0.50 lower than they were three months ago.
• According to feedback from our team at ARM, there’s still a lot of stored and un-marketed grain, particularly corn. Many farmers are holding out for a price increase, but how big of a bump will it take for them to start moving that grain?

If you’re waiting for prices to rise, make sure you have a specific number in mind and act when it hits. Just because prices are trending up doesn’t mean they’ll keep climbing. Stay on top of the market, and check out the chart here: https://www.barchart.com/futures/quotes/ZCZ24/overview

From the Boots on the Ground at ARM

Let’s get started in the South.

Unfortunately, God did not bless Texas with his own hand this year. There are a few pockets of “good” crops, but overall, yields aren’t looking great for dryland farmers. Irrigated fields with good water supplies should still see solid yields, especially for cotton, but overall prices have fallen. Many farmers didn’t take the chance to lock in cotton prices when they were in the 80s over the summer, and now, with declining prices and lackluster yields, there’s a lot of concern.

Now to the North.

Let’s chat about our cheesy friends in Wisconsin. Cheesy…get it? Harvest is starting across much of the upper Midwest, and early yield reports are promising, but we’re still waiting to see the late-planted acres come in. Buyers are offering some tough basis terms ahead of harvest, so producers will want to keep an eye on the cost of carry and watch for ways to manage that potential basis hit. The typically steady drum beat from suppliers to prepay for inputs in the fall seems to be a bit quieter this year. This will certainly be a year to price multiple options for fertilizer, chemicals, and likely seed as well.

Let’s now move over to Ohio – Unfortunately, it’s not a great story here. Harvest has begun, but 22 counties have already been declared disaster areas due to drought. It’s been the driest summer since 2000, and crop insurance claims are rolling in, with more expected. For many, 2024 will be a year to remember, but not in a good way.

In a downward commodity cycle, a common discussion is the “should I sell something” discussion. If it is determined that a sale is the best way to fill a cash flow hole in the operation, let’s discuss how to analyze the decision on what to sell.
When we are talking about assets on the farm there are 3 types:

• Productive Assets – Provide support and generate revenue to fund operations and debt payments
• Essential Assets – Needed assets, but are low revenue producers
• Non-Productive Assets – Not used or are expensive to use relative to the little or no income they contribute (Lazy Assets)

Clearly, the first asset category to consider is the lazy asset category. So, let’s chat about that. Why did you acquire the asset? Let’s say it is under productive farm ground. Was it acquired -spontaneously (it was available), for tax purposes, for growth, because it was family ground, etc…?

Now that the reason is identified – was it a justified purchase? Does it still make sense? What changed? Now that we have the fundamental reasons behind the purchase understood, let’s talk about real numbers. How much has that asset MADE your business? Pull out all the numbers. How does that piece of ground stack up against others? Does it make you money? Or is it creating a hole that other productive tracts have to fill?

Selling assets does not equate to weakness. You are the asset manager of the farm, it is your job to make your assets work for you! Assets are not children, you can sell them if they are lazy and don’t pull their weight. Being profitable is more important than how many acres you farm. Someone that farms 1,000 acres can have a higher net income than someone that farms 10,000 acres. Management is key. Manage your assets and make them work for you (not be lazy.)

What’s going on in agriculture? What is top of mind for farmers? I bet you have heard those questions a lot across social media and news sites. However, don’t you think those questions are extremely broad? Agriculture is such a diverse industry in the United States and what is “going on” and what is “top of mind” can vary greatly from one region of the country to another. Here in this newsletter, ARM is going to bring you details from our boots on the ground crew across our footprint. This information is not meant to be fancy, negative or positive, bullish or bearish, and especially not formal. It is meant to be informative and real. Each newsletter will feature several states within our footprint.

Hot Button Issues

What phrase did the pandemic make most famous? Guesses? The answer is “unprecedented times.” The explanation for everything was “we are in unprecedented times.” Seems like everything as of late revolves around that common theme: Net Farm Income

• Via USDA’s projection NFI will drop 25.5% from 2023 to 2024, which coupled with the prior year drop from 2022 to 2023 of 16% would equate to the largest drop in history.
  • Agweb has a great article and chart The Ugly Truth: 2023 and 2024 Will Go Down As the Two Largest Declines in Net Farm Income Ever | AgWeb
• Many farmers have already burnt through the working capital that was built in the years leading up to this steep decline. Working capital is a farm’s first line of defense against volatility and some are already in negative WC positions. So, how can you rebuild your line and defend against current and coming volatility?
  • Think about these items – dispose of lazy assets, cash out equity from long term assets if necessary, take a deep dive into your debt service and borrowing needs for 2025.

Quick Commodity Price Chat

Speaking of the NFI drop, commodity prices are tough.

Prices have continued to dip with the corn market having a 3 on the front of cash as well as December futures. The annual crop tour is under way with big yields coming out of Iowa. Corn Bulls Slip On Thursday (barchart.com)

From the boots on the ground here at ARM the consensus across many markets is the amount of 24 corn crop already marketed is lower than normal. Many are hoping for a bounce to make sales, but the market appears oversold which could produce a short-lived bounce.

This is a time to keep a laser focus on the markets and take any opportunity the market gives to lock in profitability.

From the Boots on the Ground at ARM

Let’s get started in the South.

Shall we start with the states that is always on my mind? Georgia. Did you know GA is not #1 for peach production? Poultry is actually Georgia’s number one commodity. The weather has been dramatic in GA, like wearing a ball gown to the Dollar General dramatic. The state had about 5 weeks of extremely dry weather from May-July. There have been some prevent plant claims, and some dry land corn claims due to the dryness. Then the rain came, and it was a build the ark type rain. Most crops were not impacted by the heavy rains, and most fall crops look healthy for the most part. Corn harvest has started, and yields are on par with prior years for irrigated, dry land is not as fortunate with many filing crop insurance claims.

Keeping it in the South, let’s chat about Mississippi. Much of the northern part of the state is abnormally dry via the drought monitor. Most farmers that do not have irrigation are having a hard time preventing the crop from burning slap up. Even some of those with irrigation are not having the easiest of times either. The drought has caused farmers to start irrigating more frequently and earlier. The rising costs of fuel and parts really hit hard in the Delta this year with the increased usage of irrigation. Wildlife has also played a role in increased costs by interfering with irrigation systems and destroying crops. Market prices are also on the decline. Farmers are worried they may not be able to cash flow without a bumper crop at these current prices.

Now to the North.

Moving right along to the Queen of Corn herself, Iowa. It was a wet Spring and planting happened later than normal. There were small amounts of late planting and prevented planting, which is not typical for Iowa. Some areas have been impacted by flooding, but crop damage is isolated to small areas. The overall crop condition is above average. Despite the number of crops planted later than normal, corn silking is slightly ahead of the 5-year average (long live the Queen of corn), and soybeans are setting pods slightly behind average but catching up quickly. The summer months have provided adequate heat and timely rain. There are some early rumblings of fall fertilizer pre-pay opening up soon, and everyone is hoping input prices will soften. Ethanol plants and feed mills are paying a positive basis in many areas for 2023 crop, but new crop prices are not near as rosy.

Last state in the boots on the ground roundup this newsletter is Nebraska. Crops are in excellent condition across the state with above average yield potential. There was some hail and wind damage in areas, not enough to impact overall state production. Timely rains have been beneficial; however, irrigation has started in all areas. Wheat yields have been stellar with dryland as high as 80 bushels and irrigated over 100 bushels. Producers are concerned with prices as most have not priced ahead and are facing challenging with cash flow.

ARM Strategic Alliance – June 24

This is the second installment of our newly launched blog. What we hope to do with this is give
guidance on pertinent issues in both the short and long term. Not all discussions/topics will be
of use for all our customers, but we ask you consider and apply as needed.

Crop Status and Market Outlook

The crop is hopefully planted and off to a great start. 2024 holds solid potential at this time for a good
to great crop. What if that happens…..? The amount of marketing you have done between January 1st
and the moment CBOT discovers we have a good crop could be critical to your success this year. How
much 24 crop have you sold? 50% sold is a respectable place to be today. If we are fortunate to have a
big crop this year we could see significant decline in current prices of corn and soy.

Global Competition

Consider the competition overseas. The $USD is currently very strong and still gaining on SA currency.
Until this changes look for China and other fair weather trading partners to go elsewhere for their purchases.

Selling the 23 Crop

Do you have 23 crop left to sell? The window is quickly closing on the rally seen over the past 6 weeks.
Hopefully, you were able to deliver and take advantage of the opportunity. If not, do so at once! When
considering interest cost and reputational risk, holding on any longer is not advisable.

Prevent Plant Acres

Did you prevent plant any acres? If so, contact your agent today if you haven’t already. It is very
important that you do the math beforehand when considering prevent planting options. If you need
to know how to calculate the various options, contact your ARM representative. We should be able to assist.

Equipment Inventory Challenges

You have probably seen the headlines regarding the equipment manufacturers’ current challenges with
inventory. There have been multiple layoffs due to lack of interest in new equipment. Conversely, many
farmers are simply passing on fleet upgrades and even opting to cash out equity on their current equipment
lines to raise operating capital. Crop marketing challenges from last year have created the need for equipment
secured equity lines of credit in some instances. If this is something you are considering, get that done sooner
rather than later. Once equipment inventory reductions start there is a fair chance that values will contract
and equipment equity may not be as appealing to lenders as it is today.

Wise Words

“Crop volume can overcome the lack of price more easily than price can overcome the lack of volume.
“That was said by a late farmer many years ago that was known by his peers as a cut above the rest. If he
were here today, he would encourage getting the most out of each invested dollar put into the crop. Forego
extras this year and hope the good Lord’s favor shines upon you!

In closing, you are encouraged to write in topics you would like to learn more about. We don’t claim to have
all the answers but we know where to look to find them…

I will leave you with a quote from General George S. Patton:

“A good plan violently executed now, is better than a perfect plan executed next week”

Sell some crop! See you next month!