Rarely does a crop farmer sell everything he harvests on the day he harvests it. You either contract to sell it now for this coming harvest, or you store your crop and sell it over the winter months following harvest.
Smart stratigy is to sell perhaps 1/10 of your crop every 4-6 weeks, thereby never getting the worst price for all of it - nor do you ever get the best price for all of it. But with a little smarts & knowing historic high & low periods of the year, a person tries to sell for the top 1/3 of the prices, and you come out ahead.
Here in my hilly ground I rarely have a 100% crop failure. Typically in a drought the low ground produces; in a flood the high ground produces, etc. Hail (got hit 2x already) really doesn't kill 100% either. So I typically get 50% of my crop in a worst case.
So I can be pretty confident selling 50% of my crop a year before I plant it, and can store the other 1/2 and sell that the following winter.
This gives me income year around, and lets me watch for grain trends, try to catch more highs.
When I sign a contract to sell for example 2000bu of corn this coming October, I am agreeing to deliver those bu for that price, no matter what. It is all on me.
The elevator may offer me options to buy out my contract, or roll it into the following year if I can't deliver. But if I don't have the 2000 bu to deliver, I need to talk it over with the coop & work something out. Bottom line, I am required to bring that many bu for that price if that is all the coop will allow. If I need to buy 2000bu at $10 a bu to fullfill the contact, so be it - that is my obligation to deliver what I said I'd deliver.
On years when crop prices go down, it is pretty easy to get a deal from the coop & roll into the following year for only a dime a bu or so. In odd years like now, if I contracted for $2 a bu less than what the market has actually gone to, the coop will _want_ that cheap grain, and it will be very difficult to get out of those contracts. This starts to involve lawyers and bankrupties when huge farmers & huge coops get tangled up in non-delivered grain.....
Way back in 2006 or early 2005 many farmers (I was by my coop) were encouraged to sell 2008 fall delivery corn for about $3.25-4.00 around here - maybe 10-25% of your crop. At that time seemed like a good price.
Now it is around $7 a bu.
A lot of farmers will be delivering some corn to the elevator at 1/2 price, compared to what it is worth today.
That is only fair. It is the gamble you mentioned, and the game we all play.
Sign the contract, you deliver what you promised.
These huge price swings always bring hard times for farming. Many coops are in trouble, because when they buy a contract low & prices go up, they need to toos more money into a 'margin call' pot of money. So while the farmer above is getting 1/2 price for his grain, right now the coop is also having to borrow millions of dollars to pay the margin calls. Both sides are losing money right now!!!!
Over the course of time, it all equals out. But these huge price swings will sqweeze some too hatd, and cost them too much for a year or 2, & they will go belly up.
Odd, isn't it? Terrific farm prices are very hard on some that you think should be making mnoney hand over fist.
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