I'm undersold, now what?

Shay: Welcome back everyone to another episode of the Ag U-Pitch. Today you have Jay Polson, Chris Fehr, and Chris, I was reviewing the Sunday Market Outlook with Jeff that you did here this week and I thought there was a few pertinent things that I wanted to hit on. And really the scenario I want to play out here is what if it's a big crop and what if you're undersold? What are the implications. And so the things that I wanted to hit on is the undersold position, basis, harvest logistics, cash flow, and government payments. And we're going to do this kind of hot and fast. So if you're undersold sitting here July 15th and there is a big crop ahead, you know, I think that an option is pending anything else coming into the marketplace is it could get worse before it gets worse.

So if you're in that position, does a guy need to seriously consider sales now for cash flow purposes, or what's your first thought on if you're undersold here July 15th, what do you do?

Chris: I look specifically at bushels that you can't store because I sure as heck wouldn't want to be paying any commercial storage for those overrun bushels. And I think now, between now and say mid to late August, you got a, you got a window here right now to have that plan put together, um, you know, for managing those overrun bushels. You got to come up with the plan because, you know, a lot of these areas from what we're seeing as we drive around— I'm in North Dakota right now, the crops even look pretty good up here. Haven't really been anywhere where, you know, other than a few little isolated spots, crops look pretty good. So I think most people are in a position where we're going to have to get stuff you know, get stuff figured out. Where is it going to go? Where are these extra bushels going?

I think we have to talk to the processors and, and figure out how we're going to move this stuff.

Shay: And be, be realistic, as in, hey, if your yield is going to be good, you know, plan for extra bushels moving. It's probably better to err on the side of having a few more bushels moved in harvest than the opposite and getting smoked on those overrun bushels that you don't have storage for. Is that fair?

Chris: Yeah, I've always been that way. You know, some people may not agree with it, but I sell what, you know, in our own operation we try to sell what we know we can't hold it and then overdo it some because we kind of look at the grain bins as a harvest tool, not necessarily a storage tool. You know, it's a little, you know, it's a little bit of a misnomer when you sit there and, you know, think, well, I'm going to fill the bins and I'll see what I have for overrun because then you're selling at the low. Almost 90% of the time. And so I think a person has to be proactive. And if you've got 500,000 bushels of storage and you end up only filling 400 of it, but you got the cash for all those other bushels, you know, there are ways you could buy a call option, or there's other things you can do.

But logistically, there's not much you can do, because I don't think most guys are going to want to put corn on the ground in their own operation. And then otherwise, the other options— pay in storage— and I don't think that's a great option either.

Shay: So fast forward 3 months, it's October 15th, you're sitting in line at the elevator, or one of your truck drivers is. The line's 3 hours long and you can't dump.

Chris: Basis is tanked.

Shay: And now you're trying to deal with bushels. You know, big crops can sometimes impede basis. And I know some of that's regional depending on where grain needs to be and who doesn't have it. But, you know, let's talk about harvest basis. And the potential for some pretty nasty conditions there. How do you think about that if we head into a big crop here?

Chris: Well, there's two parts to that. The basis part that you just said, I think a person has to be really proactive with that. And if a person has some early harvest stuff, they can do anything they can do early, you know, be talking to the processor wherever you deliver your corn. A lot of times that early stuff does get a little better basis, especially especially if you do the planting in August instead of October. And, you know, and so those early, early bushels are really key. And then hopefully a person has, you know, has some storage to keep the combines rolling while some of those trucks are sitting in line. But I still think the early bird gets the worm is getting those bushels delivered as early as you can. Don't be waiting for corn to be 19%. You know, this might be a year where a person's harvesting a little bit wetter, drying the corn.

And, you know, and everybody's different, that's not going to be the case for everybody. But I think each person really has to put that logistical plan together, like you said, you know, and figure out what makes things the most efficient so they spend the least amount of time sitting in a truck line. Mm-hmm.

Shay: And the harvest logistics goes beyond just delivery points too. I mean, it's— if you got, you got more bushels, your days are longer, your you might be a little bit longer on dryer, maybe your wet holding storage gets filled up faster. You know, just taking into consideration when do we get started, what are conditions like as we head into October. I mean, there's a lot that goes into the harvest logistics when it comes to a potential big crop out there. So, you know, this is maybe a little preemptive. Again, this is potentially 3 months out, but now is the time to kind of be thinking about it as you have a couple of months here to prepare and specifically outlook on the marketing. Anything else on the harvest logistics piece?

Chris: Well, I think, you know, this is the time to be doing the math and doing some scenario planning. You know, a lot of operations we work with and I was just looking at two specifically, just a couple of different profit managers over the weekend. And it was interesting because if you just increase their yield by 10 bushels, One of them that was increasing their overall total bushels by 35,000 bushels, and the other one was, was almost 60,000 bushels, just a 10-bushel increase. And so, you know, you take your acres and say, okay, what happens if it's 10 bushels more? What happens if it's 20 bushels more? And you might find that all of a sudden, holy crap, we do have, you know, potentially a problem, especially when, you know, a lot of the operations planted more corn. It is going to be more of a logistical issue, and then that's compounded by— because the neighbors did it too.

And so there's just going to be an emphasis, I think, on strategy and planning logistics basis and all the things we've just been talking about to make harvest as smooth as you can, because it's going to take a while when there's this many acres and this many potential bushels. We'll see. But it looks like a pretty good crop.

Shay: So I'm going to harp on this again. If you've not met with your lender to talk cash flow and you're in a situation where you need to have that conversation. It's not too late. You need to, you need to talk to your lender from the idea of maybe you are delivering bushels in October or November, getting, getting, you know, product delivered sooner to have that cash coming in because you need the cash flow. And I think there's, there's a lot of people that are still not having that conversation based on what you and I and the Ag View team as well as just across the countryside have heard about where people are. As a percent sold. So if you've heard us say that 3, 4 times and you've been ignoring it or haven't done it, I still think you need to go have that conversation.

And it can be as simple as sending them, here's my marketing strategy, here's where I'm at as a percent sold, and here's how I think that's going to impact things like input purchasing, prepay for 2026, things like getting bills paid here at the end of 2025. Where's your line of credit? What kind of interest expense are you looking at? How comfortable is the bank with that? You know, I think that's an important piece that we need to continue to think about from a cash flow perspective, Chris. Yeah.

Chris: And I would just add to that too, you know, what you just said and my comment right in front of that as well, where I think a person has to really do some algebra here with respect to price higher and lower and, you know, nobody knows. I mean, we maybe are seeing a July low, an early, early harvest low, or maybe we're going in the tank and maybe we're going to recover some. Nobody knows that part. But what we have to do though is we have to play with those scenarios of those price parameters times yield and then what we're trying to get at is what is gross income per acre, not just price and not just yield. It's the the two in concert and looking at that gross income to have that conversation you just talked about with the lender and to look at cash flow and all that. So I think those are really good comments.

Shay: Well, and ask the lender, they're going to give you a number that they're using. You know, are they using $4? Are they using $4.20? Your local lending institution is going to have a number that they're plugging in and the backside for farmer balance sheets because they have to make projections too for their business.

Chris: So, you know, yeah, what they're looking at, usually the farmer can get a quite a bit better price than that too. So that's where, you know, I think, I think the biggest challenge is just where these prices are at and what, where the cost of production is at. They're just going to be some of these early bushels. It looks to me like unless something really changes are going to be sold, you know, at numbers that might be a little below the cost of production, but You know, what else you're going to do with these, these bushels from a logistical and a, and it's just a practical standpoint. I think a person's really got to, really got to be crunching the numbers now.

Shay: Yeah, last thing I got here, Chris, is this FDRP disaster relief program payment that came out or is rolling out currently, as well as, you know, there's some guys out there that had margin protection and who knows what this is going to continue to look like if there's additional government subsidies, relief, whatever you want to call it. But I think it's a practical time to remind people that when you get those dollars in, it's not just a check that you should put into your account and say, oh, that's good to go. If you're receiving the money in this year, it needs to be applied as a per-bushel basis and built into your marketing plan. Don't lose sight of that because some of these are significant checks to where it could be having a $0.20 or $0.30 per bushel impact on corn or soybeans in your cost of production.

And you may be able to be making some marketing decisions that makes you not feel as bad about the price that you're receiving. So that's just something I thought about with the STRP coming out. And who knows again what the, what the next 5 to 6 months is going to look like here in 2025. Any final thoughts on that?

Chris: Yeah, I think there's a lot of younger listeners, and that's, that's really good comments to make because I think there's a lot of younger listeners. I remember back in the day when, you know, we were, we were doing LDPs and all this other stuff, and, you know, we were selling corn at below the cost of production. But then by the time we added in the other funds that came in, which we don't like getting government funds, I get that. But, you know, when, like you said, whether it's crop insurance or premiums or government payments or whatever it is, got us whole again. And so if you sit there and do nothing, there's consequences to that too. It is a decision, but it's— there can be consequences. So I think, you know, what you said there too, I just echo that, you know, make sure you're adding those, those cents per bushel back into your, into your equation.

So appreciate you mentioning that.

Shay: That's key. Yep, that's all I needed today, Chris. Just wanted to get a quick podcast out here while it was on my mind. If you got questions and want to reach out to me, my phone number is 309-264-3090. Go back and listen to the Sunday Market Outlook that Chris and Jeff had done here for the second week, or end of the second week here in July. Chris, thanks for the conversation today.

Chris: You bet. Have a good day.

Shay: And thank you everyone for listening to another episode of the Ag View Pitch. We will catch you next time.